Today’s eighth-graders will pay an average of € 77,000 more to the statutory pension fund than they receive from old-age benefits. The generation of parents in the pension system is disadvantaged compared to the same age childless. The planned reforms of the pension of Andrea Nahles do not change this imbalance.
The new pension package is expensive for pensioners and taxpayers. According to the draft law of the Federal Ministry of Labor, the improvements will burden the pension fund and the federal budget by around 2030 with around 160 billion euros. But pension improvements bring benefits especially to older citizens. The whole thing has to pay the young generation of workers. A recent study shows that adolescents born in 2000 will pay around € 77,000 more into the pension fund than they will receive later in the form of pension benefits. Taking into account all social contributions and benefits, as well as taxes and tax-financed measures, a child will contribute around € 50,500 to the state during his lifetime.
Families are systematically disadvantaged in pensions
The new study by the Bertelsmann Foundation investigates how the benefits of mothers and fathers are recognized in the German pension system. The authors come to the conclusion that, despite all family-related benefits, parents are systematically disadvantaged and financially burdened. After all, they contribute not only to the pension of their parent generation through their pension insurance contributions. By raising children, they also ensure the preservation of pension insurance in the future. Nevertheless, they have to handle the associated financial burdens largely alone.
Pension improvements start in the wrong place
The German pension system takes insufficient account of the fact that many mothers and fathers interrupt their employment, at least temporarily, as a result of raising children. As a result, their future pensions are lower. It is true that with the mother’s pension now planned, at least older mothers will be better off. However, this does not change the situation of today’s young families. The author of the study, Martin Werding, even assumes that the disadvantaging of the families in the German pension social system has contributed to the declining birth rate. Previous measures to eliminate the burden on families – such as the introduction of the child care supplement in long-term care insurance – are not enough to improve the situation.
PAYG procedure of the statutory pension insurance
The statutory pension system is based on the so-called pay-as-you-go system. This means that the contributors finance the retirement of today’s pensioners generation. They themselves will later be financially supported by future generations in their old age. This is also called a generation contract.
Young workers pay
However, there will be no radical reform of the pension system with the new reform package. Thus, the young contributors will continue to be disadvantaged. As a rule, they have to make private provision in order to maintain their standard of living with their pension. In order to maintain the German pension system in the long term and to ensure the financial security of contributors in old age, there must be far-reaching changes that go beyond the state subsidy for Rürup-Rente. Many consumers are already unsure how to best prepare for their retirement. For example, without advice on old-age provision, it is difficult for many people to understand whether it is more worthwhile to take out company-based or private retirement plans.
Pension system must be demographic proof
Jörg Dräger, CEO of the Bertelsmann Foundation, warns the politicians to make the statutory pension insurance “demography-proof and family-friendly”. But this requires a fundamental reform that goes far beyond the current pension reform package. The study proposes two reform options. The introduction of a child tax allowance such as the tax would relieve the parents financially, since they would have to make fewer contributions without losing future pension rights. The second method would be a three pillar model of basic pension, child pensions and compulsory pension for people raising less than three children. This model would also relieve the burden on families and equate financially with childless people in old age.