German basic pension raises questions of financial sustainability | News

The introduction of a basic pension in Germany – or Grundrente – has been raising pressing questions over its long-term financial sustainability.

“Pension policy decisions will cost money for decades to come and the basic pension will not help against old-age poverty,” a spokesperson for Gesamtmetall, the organization representing companies in the metal and electrical engineering sector, told IPE.

According to Gesamtmetall, the costs to provide a basic pension are “enormous”, with €400m in administrative expenses to calculate in 2021 alone for a pension insurance pot of €1.3bn.

A total of around 1.3 million people will benefit from the basic pension from 2021, including 70% of women.

“We have never been able to afford the basic pension,” the spokesperson said, adding that funds for the measure are based on EU financial transaction tax that will never exist.

A national debate has erupted yet again after, on May 15, the German parliament reviewed in the first reading a draft law for the introduction of the Grundrente for long-term insurance in the statutory pension, based on a gorvernment proposal.

The coalition partners, consisting of the SPD, CDU and CSU parties, included the basic pension in a contract to support Angela Merkel’s government in 2018, reviewed last November, but still a source of doubts on essential points.

The SPD originally required that the income would not play a role to assess whether a person had the right to a basic pension, while the Union (CDU/CSU) asked to take into account not only their income but also their entire financial situation.

The pension expert for the CDU/CSU parliamentary group, Peter Weiß, now believes that a basic pension will start in 2021, but one condition, he said, is a solid financing concept.

The government intends to present various financing models, including a European financial transaction tax, but “we lack a binding, clear statement of where and when this money is available. This is a basic requirement for the Union. The financial concept must also be in place if we give the final consultation (on the law) in the parliament,” he explained.

Under the new scheme, additional pension will be paid to anyone who has at least 33 years of contributions to the statutory pension insurance based on periods of employment, child-rearing or care work.

The basic pension is calculated in steps, from 33 to 35 years of contribution to ensure that also below 35 years additional payment is provided, according to the legislator.

The Grundrente is guaranteed after assessing that single earners own a maximum monthly income of €1,250, or €5,000 per year, and €1,950 per month (€ 23,400 per year), for married couples or partners.

The parliamentary commission labour and social affairs” will hold a hearing on the draft law on May 25. The Deutsche Rentenversicherung (DRV), the administrator of the state pension scheme, has submitted a series of proposals to streamline the financial and bureaucratic processes to grant a basic pension.

In a statement, the DRV had considered an “enormous challenge” assessing the requirements for granting a pension. For the first time, pensions must be retrospectively examined and, if necessary, insurance biographies upgraded.

The authority foresees July 2021 as the earliest date possible for the payment of the additional pensions because the IT architecture has to be adjusted in a highly complex pension system, and the 26 million already existing pensions can only be processed by the end of 2022.

The DRV thinks it is possible that the basic pension is financed with taxes, but “parameters” for financing the measure in the new rules have not been determined exactly.

An increase of the federal subsidy may not be sufficient in the long run to cover the additional expenses for pension insurances.

The DRV, therefore, supports a reimbursement scheme that would also take into account additional administrative and procedural costs. Reimbursements are made, for example, by the federal government in the context of the Claim and Benefit Transfer Act (AAÜG) or by the Federal Employment Agency for reduction of earning capacity.

The spokesperson for Gesamtmetall said: “The basic pension creates new injustices. Everyone involved would be well advised to forego the basic pension.”

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