Struggling Merz administration confronts a massive financial challenge: necessitating 500 billion euros for pensions
German Pension Reform: Economist Criticizes Merz Government's Plan
In a recent interview with Wirtschaftswoche, Axel Börsch-Supan, an economist and director at the Munich Center for the Economics of Aging (MEA), has expressed his concerns about the German government's pension reform plans. Börsch-Supan finds the proposal to increase pensions for the well-off beyond comprehension, calling it "utter foolishness" and "unfair."
The Merz government's pension plan, launched by Labor Minister Barbara Bas, is estimated to cost 500 billion euros. This plan, however, does not include fundamental changes to pensions, as reported by various sources.
Börsch-Supan, who has been involved in pension commissions in the past, advocates for a different approach. He proposes reforming pension systems by dynamically linking the retirement age to increasing life expectancy, with exceptions for low earners and those in physically demanding jobs. He also suggests smaller pension increases overall but higher relative increases for low pensions to ensure fairness and sustainability.
Moreover, Börsch-Supan calls for a rising retirement age beyond 2030 and compromises for those who cannot work up to the retirement age. He emphasizes the need for action, stating that the economic weakness is increasing year by year and that there is a blatant lack of insight in politics regarding the imbalance between contributors and pensioners.
The coalition government, on the other hand, is focusing on voluntarism and encouraging retirees to continue working through incentives. They also plan to extend the pension level of 48 percent until 2031.
The pressure on the Union and SPD to reform pensions is growing, as the baby boomer generation will exacerbate the imbalance significantly between contributors and pensioners, a fact that science has been saying for decades.
In a related development, the expansion of parental leave benefits will result in additional costs of five billion euros per year, according to estimates by the German Pension Insurance (DRV). This move, however, will allow parents of children born before 1992 to qualify for full parental leave benefits.
Meanwhile, the shoe chain has filed for insolvency and is closing all 23 of its stores. On Monday, August 25, Chancellor Friedrich Merz is scheduled to meet with the leaders of CDU and CSU to discuss the announced "fall of reforms."
In a separate ruling, the Federal Social Court has made a decision that thousands of job center decisions could be unlawful. The exact implications of this decision are yet to be seen.
As the pension reform debate continues, Börsch-Supan's comments serve as a reminder of the seriousness of the macroeconomic situation and the need for a comprehensive, fair, and sustainable solution to the pension imbalance in Germany.
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