Retiree Rights

On East German Pensions, Merkel Risks a Costly Commitment

merkel-fuchs
The German chancellor's promise to raise the pensions of former East Germans could win her party votes in upcoming elections.
  • Why it matters

    Why it matters

    Facing elections in three eastern German states, Chancellor Angela Merkel’s call for pension parity may earn her Christian Democrat Party votes.

  • Facts

    Facts

    • A special retirement allowance for eastern Germans was created because their much lower wages in the former Communist half of the country would have led to poverty-level pensions.
    • Workers in the east who have paid into their pensions since reunification will receive €210 per month more than those with comparable wages in the west.
    • Many struggling regions in western Germany also have low wages, but no pension boost.
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    Audio

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Just in time for the 25th anniversary of the fall of the Berlin Wall, Chancellor Angela Merkel has finally promised eastern Germans parity for state pensions. Nearly a quarter of a century after unification, this remains the only area where East and West Germans are treated differently legally.

The chancellor’s announcement that pensions parity will be reached by 2020 at the latest is very popular and is likely to make voters in the upcoming eastern state elections in Saxony in August and in Thuringia and Brandenburg in September favorably disposed to vote for her Christian Democrats.

But the popularity of this effort masks a basic misunderstanding about what the German division of statutory pensions is all about. The widespread belief – one now enthusiastically cultivated by Mrs. Merkel – is that the eastern German retirees were worse off than their western German cousins because lower wages in the formerly communist east resulted in lower pension entitlements. Yet exactly the opposite is true.

Mrs. Merkel’s government could end up promptly dropping this political hot potato shortly after this fall’s elections.

The special provision was introduced after reunification in 1990 to prevent poverty-level pensions for easterners. The government created a “correction factor” in the pension formulation that ensured an average worker in the West earned approximately the same pension as an eastern German with their wage, which at the time was about 16 percent lower. As a result of this special pension law, an easterner gets more for every euro they pay into the pension than a worker in western Germany.

This is not a trifling matter. Bert Rürup, the former chairman of the German Council of Economic Experts and the head of the Handelsblatt Research Institute, recently determined that a worker in eastern Germany paying into the pensions system since reunification is now entitled to €210 more per month than a colleague earning the same amount in West Germany.

That means in the course of Mrs. Merkel’s promised pension parity, this privilege of those working in eastern Germany will end and they’ll be on the same level as those in western Germany, where those earning lower wages in struggling regions do not receive a pension boost. It’s hard to imagine that could be a winning issue in the eastern German states.

Which is why Mrs. Merkel’s government could end up promptly dropping this political hot potato shortly after this fall’s elections.

The author is a political correspondent in Berlin. He can be reached at: thelen@handelsblatt.com

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