ifo Institute Takes a Critical View of the Basic Pension in Germany
The ifo Institute takes a critical view of Germany’s basic pension. “Ultimately, the SPD has successfully achieved its goal of securing an additional social benefit for people with low pension entitlements of their own,” says Joachim Ragnitz, Managing Director of the ifo Institute’s Dresden Branch. Above all, Ragnitz criticizes the fact that pension amounts are no longer based on previously paid contributions.
“This takes the organization of old-age pensions in Germany further and further away from the basic idea of insurance, transforming it more and more into an instrument of social policy,” Ragnitz continues. “Moreover, this policy is a burden on the younger generation as taxpayers and contributors, which will lead to problems in the long term because the number of eligible pensioners will increase enormously in the future.” No solutions at all to this problem have yet been identified.
According to Ragnitz, the primary goal of the agreement among Germany’s governing coalition was to combat poverty in old age by introducing a basic pension. However, the compromise on this issue makes virtually no progress towards this goal, since it leaves those who are particularly in need – namely those who have been paying into the system for less than 35 years – still with no entitlement to a basic pension. “There would have been better solutions here, such as introducing a proportional allowance into the basic insurance,” Ragnitz says. “But the SPD’s priority was obviously to change the system. And that’s what they’ve managed to do.”
Ragnitz adds: “Incidentally, what the solution as adopted really does is deliver the means test demanded by the CDU, just under a different name: the income test. However, it applies only to single people with incomes of more than EUR 1,250 per month; as a result, many people will still benefit from the basic pension, even though they don’t qualify as needy under current legislation.”
