Securing the financial viability of pension insurance in the long term

Today, the statutory pension insurance system is fundamentally much better prepared for the expected demographic changes than was the case in the past. Nevertheless, there is a need for action: We need adjustments to our old-age security systems so that the statutory pension insurance actually remains sustainably efficient and financially viable and the supplementary old-age provision can fulfil its task of compensating for a necessary decline in the pension level in a reasonable manner.

The demographic challenge is great:
Our society is ageing: life expectancy is increasing and the number of older people is growing. At the same time, far fewer children are being born than in the past. Whereas today there are around 30 people aged over 67 for every 100 people aged between 20 and 67, this will already be around 50 people in 2040. The pressure on the pay-as-you-go statutory pension insurance system is increasing as a result of this ageing. Without reforms, it cannot be financed in the long term.
An extension of working life must not be made a taboo subject in the political debate:
The decision taken by the legislator in the "RV-Altersgrenzenanpassungsgesetz" (Pension Insurance Age Limit Adjustment Act) to gradually raise the statutory standard age limit from the previous 65 years to 67 years by 2029 was correct and necessary. Raising the statutory retirement age helps to limit the decline in the labour force potential and prevents the significant increase in life expectancy from being borne exclusively by the contributors. If, fortunately, life expectancy continues to rise, the retirement age will also have to increase in the long term. This is the only way to distribute the costs of an ageing society in a way that is fair to all generations.
Keep total social security contribution below 40%:
The overriding goal must be that the contribution rate to the statutory pension insurance scheme does not exceed 20 % and the total social security contributions do not exceed 40 % of the remuneration subject to social security contributions in the long term. Structural reforms in the statutory pension insurance system are therefore essential, as the pension insurance contribution rate alone will rise from 18.6% today to almost 20% as early as 2025 due to demographic developments. Without reforms, the contribution rate will then even rise above 20 % after 2025. This must be prevented. Even higher financing burdens would overburden the contributors and - because this would also increase additional wage costs and thus labour costs - make it more difficult to maintain and create jobs.
Structural reforms are necessary:
In addition to a reduction in benefit levels, it would be important to rebalance the tasks of pension insurance, as also recommended by the BDA Commission on the 'Future of Social Insurance: Limiting the Contribution Burden Permanently'. The aim of guaranteeing adequate, contribution-based provision in old age and in the event of reduced earning capacity must be given greater priority. On the other hand, non-contributory benefits and expensive exemptions for individual groups of insured persons - such as the basic pension, maternity pensions and the 63+ retirement age - should be scaled back. Sustainability factors, on the other hand, must be strengthened.
Eliminate early retirement incentives:
The noticeable shortage of skilled workers is already a crucial issue for the future of the German economy. It is therefore important to remove all incentives for early retirement - especially the pension from 63 onwards, which is free of deductions - and existing disincentives to increase working hours (e.g. the sliding zone in midijobs, privileged treatment of part-time work in the case of the basic pension) as quickly as possible.
Strengthen supplementary pension provision:
In view of the demographic challenge, most other European countries have also decided to build their pension systems not only on statutory pension insurance but also on occupational and private provision. A mixed system of pay-as-you-go pension insurance and additional funded provision is significantly more crisis-proof and sustainable than a system that relies on only one pillar. In the context of demographic change, supplementary funded pension provision offers an important advantage: it makes it possible to pre-fund future pension entitlements. A decline in the number of contributors does not in principle have any negative consequences for funded pension provision.
A pension reform based on these principles helps to ensure the long-term financial viability of the statutory pension insurance system. At the same time, it strengthens the equivalence principle and the acceptance of the existing pension system, because the contributions paid in increase one's own pension entitlement to a greater extent and are used less for other tasks.
18. September 2023

Pension insurance

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