With fewer young people and more old people, the pension system is on the verge of collapse. The CDU offers ideas for victory. Currently, the working groups are focusing on the preparation of a new party manifesto, with which the party wants to participate in the Bundestag elections in 2025, is pension and social policy, as well as the mandatory pay-as-you-go pension system , which, due to demographic changes, may encounter serious problems.
The most explosive proposal from the CDU experts: the retirement age should be raised by linking it to longer life expectancy. But that’s not all. The Conservatives plan, among other things, to intervene in company pensions and private old-age provision.
Retirement age
The idea: From 2031, CDU experts want to link the normal retirement age to life expectancy – in a ratio of one to two. This means that one third of a year of life will be spent in work and two thirds in retirement. In other words, the age limit will increase by four months for each year of life lived.
The idea that Germans have to work longer hours to increase the number of those who finance pension payments is as old as it is unpopular – although at the same time it makes a lot of sense from the point of view of experts. Given that currently there are on average about 1.8 payers per retiree. In 2030, according to forecasts by the German Institute for Economics (IW), there will be only 1.5 per retiree, and in 2050, given the large number of retirees of the baby boomer generation, maybe only 1.3.
In addition, the population in Germany is increasingly aging, which means that it takes longer to receive money from the pension fund. With longer life expectancies, many people stay fit longer and can therefore work longer in most occupations.
“We need to link the retirement age to life expectancy,” economist Martin Werding stressed in a recent interview with t-online, “otherwise our pay-as-you-go system will be under too much pressure.” What he means is that without raising the retirement age, it is hardly possible to guarantee a stable pension level for the growing number of retirees.
Company pension
Idea: the CDU experts want to set up a company pension financed on a parity basis, which will be compulsory for low-wage workers. In this case, parity means that the pension is financed equally by the employer and the employee. This is done so that “workers have a funded provision that complements the mandatory pension”. In the event of a change of employer, the occupational pension must be transferred without formalities.
The state subsidy should be “focused on citizens who really need it”. “For people on low hourly wages, we want to support the worker’s share of the labor pension through government subsidies,” the project says.
Conclusion: the working pension is in fact considered the second component of the old-age pension, together with the state pension payments and the purely private pension. But the problem is that in Germany only every second employee has such an agreement with the employer. Many economists think it is wise to start there.
However, practical questions raise doubts: how, for example, to facilitate the transition from one employer to another? The CDU experts also do not provide any additional quantitative assessment of government subsidies.
Private pension
Idea: A group of experts wants to define the criteria for a standard pension product that should simplify state-subsidized private old-age pensions. “The standard product should be zero upfront, with the lowest possible administrative costs, and without full payment guarantees,” the draft says. This product should be mandatory for all employees – if they don’t mind. Furthermore, it should be possible to use it as a ‘means of converting work pensions’. And here, government support should be limited to low-income people.
“Parents should be able to receive and save for a standard pension product for their newborn. The state must contribute a certain amount to this product as start-up capital for each baby at birth,” the CDU experts continue.
In fact, this proposal is not completely new either. In fact, such a standard product already exists today – but it has become irrelevant: Riester-Rente – a non-state pension subsidized by the state in the form of benefits and special deductions for expenses. The subsidy consists of an additional old-age benefit and, where applicable, an additional deduction for special expenses.
The problem with Riester pensions is the low interest rates and associated returns, as well as the sometimes high acquisition and administration costs.
In this respect, many experts are likely to consider the CDU’s idea a good one, especially the emphasis on the absence of funded contributions. Another useful idea is that if private pensions are mandatory for all by default and citizens only have to actively opt out of this product, this would be in line with the modern approach of behavioral economics. Behavior “desired by the government” – in this case, private old-age pensions – can often be because the majority is less likely to question the standard rule or is simply too lazy to deal with it in detail.
However, whether this will significantly improve private retirement provision largely depends on the actual pension proceeds, which the CDU does not describe in detail in its working document.
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