Germany to launch extra pension scheme linked to capital markets
The aim of the reform is to ensure that people can retain their standard of living after retirement
05 March 2024 - 14:16
byMaria Martinez
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Berlin — The German government will introduce an additional pension scheme investing in capital markets to ensure that pensions remain linked to wage trends, a draft of the new law seen by Reuters on Tuesday showed.
Due to demographic developments, Germany’s pension system is coming under increasing pressure, as the gap between salaries and pensions is growing.
The aim of the reform is to guarantee a pension level of at least 48% of an average wage until the end of the 2030s. This will allow pensioners to maintain their living standards after retirement.
To relieve the burden on contributors in the long term, a permanent capital stock will be built up with loans from the federal budget and transfers of government funds.
As a first step, the government wants to take €12.5bn ($13.56bn) in debt this year for the generational capital, to invest in capital markets.
A capital stock of €200bn is to be accumulated from federal debts by 2036. The returns are to enable annual distributions to the pension insurance scheme of €10bn by investing in shares and funds.
A security buffer for distributions is set up to protect the assets, in particular the loan amount granted.
Contributions to the pension system have been stable at 18.6% since 2018 and will remain at this level until 2027, according to the ministry.
From 2028 contributions will increase to 20% and from 2035 to 22.3%, which will then remain stable until 2045, according to the ministry’s estimates.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Germany to launch extra pension scheme linked to capital markets
The aim of the reform is to ensure that people can retain their standard of living after retirement
Berlin — The German government will introduce an additional pension scheme investing in capital markets to ensure that pensions remain linked to wage trends, a draft of the new law seen by Reuters on Tuesday showed.
Due to demographic developments, Germany’s pension system is coming under increasing pressure, as the gap between salaries and pensions is growing.
The aim of the reform is to guarantee a pension level of at least 48% of an average wage until the end of the 2030s. This will allow pensioners to maintain their living standards after retirement.
To relieve the burden on contributors in the long term, a permanent capital stock will be built up with loans from the federal budget and transfers of government funds.
As a first step, the government wants to take €12.5bn ($13.56bn) in debt this year for the generational capital, to invest in capital markets.
A capital stock of €200bn is to be accumulated from federal debts by 2036. The returns are to enable annual distributions to the pension insurance scheme of €10bn by investing in shares and funds.
A security buffer for distributions is set up to protect the assets, in particular the loan amount granted.
Contributions to the pension system have been stable at 18.6% since 2018 and will remain at this level until 2027, according to the ministry.
From 2028 contributions will increase to 20% and from 2035 to 22.3%, which will then remain stable until 2045, according to the ministry’s estimates.
Reuters
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.