The key societal trend in many parts of the world is an ageing society. This trend is driven in part by lower fertility but mainly by higher longevity. One of the big challenges is the budgetary pressure on pension systems.
A recent study of Bertelsmann Stiftung has provided evidence that extended working life and the inclusion of self-employed and civil servants in the pension scheme will have the most positive effect on Germany’s statutory pension insurance system. The most significant outcomes in such a context are valid information about coming contribution rates and net standard pension levels before tax. Under current law, without any shift in organization of the existing pension system the demographic change will lead to a contribution rate of 27.2 percent for a pension level of 41.2 percent in the year 2060. Starting from this worst case scenario, a raised retirement age of 69 years promises a contribution rate of 26.2 percent for a pension level of 42.3 percent, whereas the inclusion of self employed and civil servants will even allow for an expected 50.8 percent pension level at a contribution rate of 24.2 percent.
Raising the retirement age is not only the scenario with a less significant effect on both ‘winner’ scenarios, it is also much more difficult to make it workable. – At least from the point of politicians, who tend to use public opinion as indicator to judge whether a window of opportunity is open or closed. This argument has to be especially highlighted during a year of elections to the German Bundestag, such as the year 2013.
At the beginning of the year a representative telephone survey conducted by infas showed that the German population is already expecting the retirement age to rise to 69 over the next twenty years, but simultaneously the majority is very skeptical about their capability to accomplish such an extended working life with the usual workload. Maybe that’s exactly why you ask the people themselves, and as a result hear a clear preference for involving more payers of contribution rates.
According to this obvious preference, it could be a good idea for German politicians to woo voters first with solutions for inclusion of self-employed and civil servants. Such an extension of the insurance coverage could be a promising first step to mitigate the budgetary pressures on the German pension system. The above mentioned relief in contribution rate and pension level in the year 2060 are reachable when the reform would be introduced in 2013. The positive effect is calculated assuming that only self-employed and civil servants starting work from now will be included step by step into the circuit of Germany’s statutory pension insurance system.
Subsequently, after turning on the inclusion process of more working groups you mustn’t forget the second ‘winner’ scenario. The panelists at the last Global Economic Symposium have been evolving solutions such as promoting lifelong learning, establishing age-appropriate careers or fighting the stigma of negative impact of age on employability. Only through a combination the prospects for the future pension-system financing can be perceptibly improved. However, even in this case, the outlook is less than favorable. It is therefore necessary to consider what other options can keep the pension system financially sound and capable of performing its functions.