Pensions Must Rise More Slowly than Wages in Germany

Pension increases should be decoupled from wage development. This is what ifo researcher Joachim Ragnitz calls for in an article in ifo Dresden berichtet. “Ensuring that pensions rise more slowly than wages is the only way to spare the coffers and not overburden tax and contribution payers. With many baby boomers soon to retire, the political decisions of recent years will result in a gigantic financial hole opening up.” He adds that an additional 2.6 percent of economic output will have to be spent on pensions by 2050.

Ragnitz goes on to say that he fears the coalition partners will make additional decisions that will prove expensive for the pension system. During the election campaign, the SPD and the Greens had promised that the pension level would not fall below 48 percent of the wage level even after 2025. “But this entails raising the contribution rate to 25 percent in 2050. To avoid that and instead finance pensions through taxes would involve dedicating some 60 percent of the federal budget to pensions in 2050,” Ragnitz adds.

The complete article by Joachim Ragnitz, Felix Rösel, Marcel Thum, and Martin Werding can be found under the title “Adding Up the Costs of Pensions Policy in Recent Years” in issue 05/2021 of the journal ifo Dresden berichtet (in German only).