Pensions are likely to continue to rise – economy

The more than 21 million pensioners in Germany can count on significantly increasing pensions in the coming years. The situation of the pension funds has “developed more favorably than we forecast,” said the Federal Executive Chairwoman of the German Pension Insurance Association (DRV), Anja Piel, on Wednesday at a lecture in Würzburg. The legal pension have proven to be robust despite the crises of recent years, the corona pandemic, the sharp rise in energy prices and other consequences of the Russian war against Ukraine.

Piel referred to the current draft of the federal government’s pension insurance report, in which a pension adjustment is expected as of July 1 next year – of around 3.5 percent in western Germany and a good 4.2 percent in eastern Germany. According to the plan, pensions are to increase by an average of 2.6 percent per year up to 2036. That’s a total of almost 43 percent. However, the increase estimated for 2023 would be lower than the exceptionally strong increase in July this year (5.35 percent in the west and 6.12 percent in the east). In comparison with the current price increase of 10.4 percent, this also means a loss of purchasing power. The data for 2023 are provisional, there will only be certainty next spring.

Actually, the pension forecasts are often gloomy

In recent years, there have repeatedly been rather gloomy forecasts of future pensions and the level of the contribution rate, because the aging of the population means that fewer and fewer employees have to pay for more and more retirees. Experts are therefore calling for pension policy corrections, such as a further increase in the statutory retirement age, which is currently gradually increasing to 67 years.

The contribution rate for employees, however, can remain stable at 18.6 percent for the time being. This quota is expected to be “secure until the end of 2026”, said Piel. The contribution rate is the proportion of the monthly gross salary for the pension insurance is carried away. It is paid half by the employer and half by the employee. Labor Minister Hubertus Heil (SPD) had previously said that, contrary to many forecasts, it had been possible to keep the contribution rate stable for longer than expected. Especially in the current cost crisis, it is good news “that working people can rely on the fact that the contribution rate will not increase”. In the pension reform, one will continue to pay attention to the development of the contributions.

Short-time work also helps the pension fund

The question remains: Why is the pension fund so stable – despite the crises? “We are a reflection of the labor market – and we have a record for employment subject to compulsory insurance,” said DRV President Gundula Roßbach. Significantly more people are paying into the pension fund than expected. According to the pension insurance, this depends heavily on the immigration returned to Germany, not including the refugees from the Ukraine. In the crisis, the short-time allowance was particularly decisive, said Roßbach. As part of this assistance, the state also continues to pay pension contributions. Even in the Corona period, the pension insurance recorded a good five percent more compulsory contributions, said Roßbach.

Pensioners can draw further hope from the development of wages. The DRV expects significant growth here in the coming years. The draft of the pension insurance report expects around five percent for 2023 and 2024. This has a positive effect on the amount of pensions because they are linked to wage developments. The pension level, which is currently around 48.1 percent, is expected to remain just above 48 percent until 2024. The value expresses the ratio of the pension to the wages and thus the security power of the pension for the retirees. By law, the level cannot drop below 48 percent by 2025. After that, however, it would slip below this mark based on the current status.

Another explanation for the plentiful flow of income from pension insurance is that more people are preparing for earlier retirement by making additional contributions. This means that they use the opportunity to compensate for deductions that are due if you retire early with additional contributions. “Many policyholders have apparently perceived this as an attractive alternative to private forms of old-age provision,” said Piel. In the first nine months, the pension insurance recorded contributions that were a quarter higher than in the same period last year.

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