Social Democrats

Pension Pandering

England, London, Grays Inn Gardens, old-age couple sitting on bench.
Plenty of German retirees wonder about having enough to make ends meet. Source: Getty Images

Ever since Martin Schulz, the Social Democratic chairman and chancellor candidate, revealed his campaign program built on the theme of social justice, he’s been struggling to sell it to voters. After seeing his party lose supporters and power in three state elections this year and after delivering a party manifesto thin on details last month, the former president of the European Parliament has now put pensions at the heart of his push for greater social justice.

Labor Minister Andrea Nahles joined him on Wednesday to outline how the Social Democratic Party, the SPD, aims to keep German pensions stable. It’s an issue that his rival, Chancellor Angela Merkel, and her Christian Democratic Union have only paid lip service to so far and one he hopes to capitalize on to boost his sagging popularity, with the CDU now leading by 15 percent in the polls.

Mr. Schulz, a 61-year-old baby boomer, is all too aware of the democratic challenges facing Germany, with fewer workers having to pay for more retirees. The country has one of the lowest fertility rates in the world. On average, German women have 1.5 children, compared to 2.4 in 1960 – and that’s the highest it’s been in more than 30 years. By the time people born in Germany in the decades after World War II enter retirement, there simply won’t be enough new workers to replace them.

“The Social Democrats' pension plan isn't a new generational contract, but rather bad news for all young people.”

Steffen Kampeter, President of the Confederation of German Employers' Associations

Mr. Schulz has promised to keep the state’s monthly payments to retirees stable while preventing the cost of maintaining the system from exploding. At the same time, he said the retirement age would not increase beyond 67 if he were elected chancellor.

Of course, doing so won’t be cheap. According to estimates, it will cost €78 billion ($87.8 billion) to maintain Germany’s pension system by 2030, when most baby boomers are expected to be retired. Whether or not the Social Democrats can keep their promise after that remains to be seen.

The German pension system was born under the country’s first chancellor, Otto von Bismark, in the 19th century. It was designed as a transfer system, with the young paying for the old and employers paying a share. But an aging population, increasing lifespans and low birth rates have created an imbalance between young and old in the country’s solidarity-based system.

The overall German pension rate, or the amount a retiree receives, is calculated by the number of years contributed to the state pension system and average income. The government fixes the average level of pensions, which is currently at 48 percent.

Mr. Schulz said his government would keep that rate through 2030. That’s 2 percent more than what Ms. Nahles proposed last November, and 5 percent more than what former Social Democratic chancellor Gerhard Schröder had discussed with his coalition Green Party coalition partner in the early 2000s.

08 p7 SPD’s Pension Concept-01

The Social Democrats have also called for retirees who have paid into the pension system for at least 35 years to receive additional assistance, a so-called “solidarity pension.” And they intend to cap contributions, equally divided between workers and employers, at 21.8 percent of salaries by 2030 from 18.7 percent.

To finance their ambitious plans, the Social Democrats have proposed bringing Germany’s self-employed into the fold. Currently, there is no requirement for freelancers or other independent contractors to pay into a collective pension scheme. Mr. Schulz and his party also intend to close the gap using tax money, up to €15.3 billion from €14.5 billion now.

Even if no changes are made to the system, the amount of money workers pay into it will go up by 2030 for the sole reason that fewer people will be paying to support more retirees. The Social Democrats’ proposals would add another layer of costs as well. By 2027, their plan would require an additional €4.6 billion a year. After that, it would become even more expensive. In 2028, additional costs would jump to €18.4 billion and €19 billion just two years later. Around half of that would be made up for in taxes.

In the eyes of the Social Democrats, however, these additional financial burdens would be well worth it. According to their calculations, the average retiree would receive an extra €150 a month. Those who worked in highly qualified jobs would even get a monthly boost of €225.

By presenting his party’s new pension platform, Mr. Schulz kicked off a crucial phase of his election campaign. Initial reactions, however, were mixed.

Labor unions praised the Social Democrats for trying to “win back the trust of younger generations,” said Reiner Hoffmann, head of the German trade union DGB, an umbrella organization for eight German trade unions.

SPD präsentiert ihr Rentenkonzept
Labor Minister Andrea Nahles and SPD Chairman Martin Schulz pitched the Social Democrats' pension reform plan to the media on Wednesday. Source: Bernd von Jutrczenka/DPA

Criticism came from the side of employers. One conservative lobby group, the Initiative New Social Market Economy, estimated that the Social Democrats’ ideas would cost more than €30 billion a year from 2030 onward. “The Social Democrats’ pension plan isn’t a new generational contract, but rather bad news for all young people,” said Steffen Kampeter, president of the Confederation of German Employers’ Associations. “The plan ends where the real challenges begin.”

The Social Democrats have closed ranks around their new proposals, but for some party members – including Ms. Nahles – it took some convincing to do so. Ms. Nahles had already presented her own ideas for pension reform last November and had calculated well into the year 2045. The new plan only accounts for the years up until 2030.

Bert Rürup, a German expert on pensions and the president of the Handelsblatt Research Institute, said he believed the Social Democrats would only be able to keep their promises until 2030. After that, the government would be forced to pay less money to more retirees due to the country’s aging workforce.

Having entered a decisive phase of his campaign, Mr. Schulz has called upon his Christian Democratic opponents to present their own reform ideas. That way, he said, voters would have something substantial to base their decision on come the election.

No one from the other side has heeded Mr. Schulz’s calls so far, but that hasn’t stopped the Christian Democrats from pulling ahead even further in the polls. According to a new survey published by the German news magazine “Stern” and the broadcaster “RTL,” Ms. Merkel’s party is enjoying a lead of 15 percentage points over the Social Democrats. Between Ms. Merkel and Mr. Schulz themselves, the incumbent chancellor is 30 percentage points ahead of the former president of the European Parliament.

For Mr. Schulz, the fight has just begun. He may be a baby boomer, but says he has no intention of retiring in 2029. “If everything goes well,” he said, “I’ll be in my 12th year as chancellor by then.”

 

Handelsblatt editors Martin Greive and Peter Thelen and John Blau with Handelsblatt global collaborated on this story. To contact the authors: greive@handelsblatt.com, thelen@handelsblatt.com and blau@handelsblatt.com

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