Pensions substantial strains in future

Official costing fore-
casts should extend beyond the year 2030 in
order to identify long-term trends that will
determine funding requirements. Public trust in
the statutory pension insurance scheme could
be strengthened and uncertainty about finan-
cial security in old age allayed if policymakers
were to spell out the likely long-term rules for
adjusting the pension scheme’s key parameters
of retirement age, pension level and contribu-
tion rate from today’s perspective.

The official calculations currently fail to take adequate
account of the prolongation of the average
working life induced by the progressive raising
of the statutory retirement age to 67, with the
result that the likely future pension-to-earnings
ratio is increasingly understated along the time
axis by current projections.

In fact, policymakers
wold be well advised to revisit the issues of a
longer working life and a higher statutory
retirement age. The incremental raising of the
statutory retirement age to 67 by the year 2029
will largely stabilise the balance between the
respective average duration of the retirement
phase and of the contribution phase up to that
time, albeit at an historically high level.

It would
make sense to extend this stabilisation concept
beyond 2029. From today’s vantage point, this
implies a graduated increase in the retirement
age to approximately 69 by the year 2060.
Even on this basis the contribution rate would
probably rise to around 24%, while the
pension- to- earnings level provided by the
statutory pension insurance scheme would fall
to around 44%. However, supplementary sav-
ings under voluntary private pension plans
could enable retirees to achieve a total pension
income above the current level, even in the
event of low market rates of return on invest-
ment.