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Pension reform ideas backed by Germany’s finance minister Christian Lindner and his liberal party FDP are again set to test a fragile government coalition.
In a recently tabled programme for a new era of economic growth in Germany, called Economic turnaround in Germanythe finance minister included austerity measures to cut public spending on pensions and to adjust the retirement age, putting his party again on collision path with coalition partners the Social Democrats (SPD).
Linder’s new intervention is a challenge to a compromise that had been achieved in the context of the first pillar reform package Rentenpaket II, with the FDP backing the fund for equity investments and the SPD advocating for a stable pension level. The reform package, which parliament has begun to debate, is expected to be approved this year.
The SPD has always rejected the idea of adjusting or increasing the retirement age, defending at the same time the rule allowing early retirement at 63 for the long-time insured.
Lindner’s economic growth programme, outlined in a paper intended only for consultation within a close circle of people in the government but now published on the FDP’s website, has triggered a crisis within a governing coalition on the brink of collapse, with chancellor Olaf Scholz rushing to hold talks today with the finance minister and vice chancellor Robert Habeck.
Lindner said his concept is an alternative to Habeck’s debt-financed investment fund (Deutschlandfonds) to help Germany out of its economic stagnation.
Probably not do-able
Johannes Geyer, deputy head of the department of public economics at think tank DIW Berlin, said that Lindner’s proposals probably cannot be implemented in the government coalition as “he deviates too much from the positions of the coalition partners”.
According to his Economic turnaround vision, the finance minister wants to adjust deductions for early retirement and supplements for later retirement in line with actuarial projections, and introduce a more flexible path to retirement.
Increasing the pension age from 65 to 67 years by 2031 and a longer working life are aspects to take into account when setting the minimum pension level, Lindner’s paper argues. The measures have been calculated as entailing a €4.5bn boost for next year’s budget.
DIW Berlin’s Geyer told IPE that deductions for early retirement could certainly be increased.
“In many other countries, such as Austria, which is often cited as a role model, deductions are higher,” he said. “However, you should not expect very significant effects on the retirement age. Stronger effects are usually only achieved by raising the age limits.”
Geyer also said that Lindner’s proposal would to lead a significantly lower state pension.
“This should be communicated clearly,” he said. “To make it transparent, he should say that he wants to lower the level by about 2 percentage points.”
Geyer added, however, that the government should avoid further lowering the level of pensions by strengthening funds for statutory pensions through, for example, contributions of self-employed, and better employment conditions for women.
The FDP’s views on pensions in the current legislative period have laid bare the differences among coalition partners that have already gone into general election campaigning mode. An initiative to reform the Riester-Rente, for example, is a solo attempt by the finance minister and his party to shake up the third pillar.