Fifteen years after Germany enacted sweeping pension reforms, the future of its pension system is once again the subject of controversial debate.
Less than half of Germans eligible for tax-subsidized private pension plans, one of the reforms’ cornerstones, have participated. This has foiled efforts to make up for state pension cuts by encouraging private retirement savings.
Responding to the grim outlook of a quickly aging society in 2001, then-Chancellor Gerhard Schröder introduced a gradual decline in public pension benefits. To compensate, individuals (and their employers) should contribute to tax-subsidized individual retirement plans, the so-called “Riester” plans (after the then-Labour Minister Walter Riester), and employment-based pension plans.
Given Germans’ penchant for post-war saving and austerity, these new second and third pillars of the retirement system would fill the gap, allowing for a smooth transition to a system of shared responsibility. So the theory went, at least.