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Germany

27 January 2017

Germany: A plan for fresh pension reforms

On 25 November 2016, the Federal Ministry of Labour and Social Affairs presented a plan for fresh reforms to pensions, in order to ensure their sustainability up to 2030.

Under the reform proposal, the basic pension scheme is to remain the system’s mainstay. It will have to guarantee a pension equal to no less than 46% of an individual’s most recent net income (compared with 48% at present). The level of pension payments in the western and eastern Länder will be harmonised by 2025. The first phase will begin on 1 July 2018. It will see the average pension value in the east increase from 94.1% to 95.8% of the average pension amount in the west.

Contributions to the statutory pension scheme, shared equally between employers and employees, will be capped at 22% of wages until 2030 and at 25% until 2045. The proposal also seeks to improve the situation of self-employed workers and individuals who have taken career breaks in order to prevent poverty among the elderly. In addition, the Federal Government intends to extend company pension schemes to a greater number of employees, thereby offsetting the fall in the replacement rate under the statutory scheme. Overall, the plan has been welcomed by trade union organisations, although they regret that the reforms are not ambitious enough. Indeed, the Confederation of German Trade Unions (DGB) considers that the replacement rate under the statutory pension scheme should not drop below its current level of 48%. The proposed rate of 46% is therefore inadequate (see the DGB’s press release of 26 November 2016 (in German).

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