“I’m really worried about my future,” says Helga K. The 59-year-old used to be a geriatric nurse in a Catholic senior home. It was an occupation that she enjoyed – despite the circumstances that went with the job. “Either you’re born to do it, or you’re not,” she says with a smile. But her back has been giving her problems for the last five years. In 2016 she had to quit due to what she calls “the wear and tear.” She simply couldn’t do her job anymore. That means she is four year’s short of meeting her regular retirement at age 63 and has been forced to apply for disability pension benefits until then. She expects a letter on the decision within the next few weeks. “It’s going to be a major cut to my income,” she says.
One in five new retirees facing poverty
Right now, old-age poverty in Germany is still a marginal problem: Currently some 21 million retirees live in Germany, and about 2 percent of those 65 and older are dependent upon government financial assistance. But according to a new study by the independent Bertelsmann Foundation, there is a serious threat that the number could rise dramatically in the future. The Bertelsmann study predicts that one in five people retiring between the years 2031 and 2036 will face old-age poverty. That means that the poverty risk quotient of those who will be 67-year-olds then will rise from 16, up to 20 percent.
More and more, pensioners in Germany have to count every cent
Retirees are considered to be in threat of poverty if their net monthly income is below 958 euros ($1,100). Those who have been deemed especially susceptible are people who worked very little or not at all due to medical illness, as well as freelancers with irregular income.
Riester retirement plan
Politicians have been very timid about approaching this urgent problem. In late May, Germany’s lower house of parliament, the Bundestag, passed a set of laws designed to strengthen company and personal retirement plans. Accordingly, annual support for retirees with savings in the state-backed plan known as the Riester-Rente (named after politician Walter Riester, who devised the plan) are to receive 175 euros instead of the previous sum of 154 euros – the first increase since the plan was introduced in 2002. Moreover, people dependent upon basic income payments from the government will not have their Riester nor their company pensions taken out of their basic welfare payments should the pension plan not exceed 200 euros per month. Until now that was not the case – therefore it simply made no sense for such people to save for retirement.
Thus, numbers for private retirement savings, especially among low-wage earners, have been rather grim: German government records show that almost 47 percent of workers earning less than 1,500 euros per month are paying into company pension funds or Riester retirement savings accounts.
Yet company and Riester retirement savings plans are highly sought after by a majority of German employees – statistics show that in late 2015, almost 60 percent of those 17.1 million employees required to make social security payments were entitled to company retirement benefits. And in late 2016, another 10.9 million Riester accounts were opened in Germany. But those positive numbers don’t tell the real story – according to the Federal Financial Supervisory Authority (BaFin), one in five of those with Riester accounts has stopped paying into them. That means they will have much less retirement income.
Low-wage earners, part-time workers and single mothers are among those who most desperately need every last euro to make ends meet. The ruling conservative CDU/CSU and Social Democratic Party (SPD) coalition has come up with a minimum, or “solidarity,” pension of 850 euros for just such persons. In the plan, employees will receive higher payments than those paid out to people who did not work and are receiving the so-called basic income. The CDU/CSU are demanding proof of company or private retirement savings plans, as well as 40 years of insurance to qualify for the program. Currently, basic income can be applied for if a person’s monthly income is less than 823 euros.
Freeze pension levels
To qualify for the SPD’s solidarity pension, which is supposed to pay out 10 percent more than the basic income, applicants will be required to show proof of at least 35 years of contributing into retirement funds. The SPD also intends to make improvements to existing disability pension benefits for those who become ill before retirement. Pension levels are to be frozen at 48 percent and contribution rates lowered to 22 percent by 2030. Tax mechanisms are to used to make the plan feasible. Statutory pensions are to be augmented by expanding the number of occupational groups paying in. Thus, self-employed persons and freelancers will be required to pay into the pension funds as well. Furthermore, the Social Democrats want to strengthen company pension plans and want small and medium-sized businesses to offer them to employees.
Under the plan of Labor Minister Andrea Nahles’s SPD, applicants must show at least 35 years’ retirement contributions
The CDU/CSU also want to emphasize company pensions and private retirement savings accounts, and say that pension levels and contribution rates will remain untouched until 2030.
What the opposition wants
The opposition wants use taxes to get rid of old-age poverty, too. The Green party has proposed retirement at 67, as well as a “tax-funded guaranteed retirement payment” of 850 euros per month. Changes to laws recognizing postnatal and child-rearing periods – benefiting both parents – are to be more heavily factored into entitlements. Part-time employment, say the Greens, should lead to retirement entitlements as well. The Greens hope to use such measures to finally create a level playing field for women in the workplace and make it easier for them to combine family life and work.
The Left party is a lot more aggressive when it comes to the topic of retirement. It wants to get rid of the existing three-pillar system of statutory, company and private pensions and replace them with one single pension fund. This would require all income earners, as well as self-employed persons and civil servants, to pay into the statutory pension fund. The Left party is calling for a retirement age of 65, and wants a “minimum solidarity pension” of 1,050 euros per month as a guarantee against old-age poverty. That sum would be paid out to every retired citizen, regardless of income or work life.
Whether these measures will be enough to solve the pending problem will hinge on individual fates and the behavior of employers.