Pension policy under pressure: What's really going on with our system?

Pension policy under pressure: What's really going on with our system?

The German pension system, which is based on the intergenerational contract, is coming under increasing pressure. Younger workers finance the pensions of older people, but the aging of the population raises questions about the fairness and sustainability of this structure. The researchers from the Cluster of Excellence “The Politics of Inequality” at the University of Konstanz show in their current studies that both citizens and members of the state parliament do not perceive the Bismarck pension system to be fair. These findings indicate growing dissatisfaction with the existing system.

A central element of the German pension system is the pay-as-you-go system, in which the contributions of the currently working generation are used directly for the pension payments of the older generation. Just pension emphasizes that this intergenerational contract establishes a constitutional right to future pension payments. Critics are increasingly calling for a switch to a funded system in order to meet the demographic challenge with falling numbers of contributors and increasing numbers of pensioners.

Challenges and solutions

Demographic change brings with it both high expectations and major challenges. In the future, the number of pensioners per person paying contributions will increase significantly. This could lead to an increase in pension contributions and taxes. According to the Federal Agency for Civic Education In 2005, the red-green coalition introduced the “sustainability factor” in order to distribute the financial burden more evenly. This was replaced in 2018 by the “double stop line” to ensure a pension level of at least 48% of average wages.

The traffic light coalition is planning to extend this stop line, but this could result in higher contribution rates and falling pension levels. Furthermore, a return to the sustainability factor after 2025 could increase the financial burden for the next generations. Researchers demand that politicians introduce the intergenerational equity factor in order to distribute the financial burden more fairly.

Adjustments to the pension system

Another important point concerns the retirement age, which is set until 2031. Adaptation is required to accommodate the increase in life expectancy. The age quotient, the ratio of people over 65 to those aged 20 to 64, will increase significantly in the next 15 years. In order to find long-term solutions, many measures are necessary, including the introduction of a flexible retirement window and the adjustment of pension contributions.

The pay-as-you-go system could not remain in its current form if the demographic situation does not improve. But reform alone is not enough; The biases and politics of decision-makers must also be taken into account. Misjudgments could jeopardize the will of voters and political implementation. The challenges mentioned require a broad discourse about justice and sustainability in pension policy.