Germany would establish a 200 billion euros pension fund

Berlin is once again tackling the problem of pension security - the government has presented a new instrument to finance pension insurance for the coming years. The idea, enshrined in the coalition agreement, is to create a fund of 200 billion euros between now and 2036 to tackle the retirement of the baby boom generation. This new source of funding would supplement employee and employer contributions as well as the state contribution.

Preventing pensioner impoverishment

In Germany, the average worker who has worked and contributed for 45 years currently receives 48.2% of his or her salary in retirement. Current legislation guarantees this ratio until 2025. But without a change in the law, the current employee contribution rate (18.7%) would have to rise to 21.1% by 2037 and the pension would have to fall to 45% to balance income and expenditure, according to the latest annual report on pensions.

By creating this "generational capital" fund, the government intends to guarantee the current level of pensions until 2039, while limiting the growth of employee contributions. Without this measure, which will be submitted to the Bundestag by the end of the summer, "pensioners would be poorer than the working population," Labour and Social Affairs Minister Hubertus Heil explained at a press conference. "This is not yet the only solution to the problem of financing pensions, but it is a building block that will make a difference," added Finance Minister Christian Lindner, regretting that this appeal to markets was not made 20 years ago.

Independent fund

The income generated by this fund will be reinvested and only from 2036 will it be used to pay dividends to the pension insurance system to stabilise contributions. The Ministry of Finance estimates that a further ten billion euros could be transferred annually by that date. The assets will be managed by an independent fund and investments will be diversified.

How will the fund be financed initially? This year, the government plans to place 12 billion euros of public loans on the capital market. These investments are expected to increase by 3% in the following years. Financed by loans, these contributions to the fund will not change the financial assets of the federal state, the German lawyers explain. In other words, they will not be taken into account by the "debt brake" mechanism, which limits the annual budget deficit to 0.35% of GDP.

No investment contributions

In addition, 15 billion euros of the federal government's assets and cash must be transferred into the fund by 2028. At the same time, employee contributions will not be invested in the fund. In Germany, of course, this bill is being debated. The country's largest trade union, IG Metall, welcomes the fact that the current level of pensions will be maintained until 2039, but is concerned about the dependence on financial markets.

"Generational capital does not make pension provision in Germany safer. It is a credit-financed gamble with uncertain future returns," said Hans-Jürgen Urban, a member of IG Metall's steering committee. Some Greens cite the failures of the $24 billion nuclear waste fund, whose capital has been cut by 12.2% by 2022.