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The German Pension System By Christoph Wenzinger, Tom Surgeon, Rebecca Hale, Pierre-Emmanuel Leng and Lizzie Simpson.

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Presentation on theme: "The German Pension System By Christoph Wenzinger, Tom Surgeon, Rebecca Hale, Pierre-Emmanuel Leng and Lizzie Simpson."— Presentation transcript:

1 The German Pension System By Christoph Wenzinger, Tom Surgeon, Rebecca Hale, Pierre-Emmanuel Leng and Lizzie Simpson

2 Pension System: History 1889: Invalidity and old-age insurance (Gesetzliche Rentenversicherung, GRV) 1889: Invalidity and old-age insurance (Gesetzliche Rentenversicherung, GRV) 1.7% of wage, paid equally by employer and employee1.7% of wage, paid equally by employer and employee 1957: First big pension reform 1957: First big pension reform Transition from Kapitaldeckungsverfahren to UmlageverfahrenTransition from Kapitaldeckungsverfahren to Umlageverfahren Kapitaldeckungsverfahren: Contributions are accumulated individual assets. Insurance payments are financed by contributions and interest on capital.Kapitaldeckungsverfahren: Contributions are accumulated individual assets. Insurance payments are financed by contributions and interest on capital. Umlageverfahren: Contributions are not saved, but spent immediately on financing actual pensions. (Generationenvertrag / contract between generations)Umlageverfahren: Contributions are not saved, but spent immediately on financing actual pensions. (Generationenvertrag / contract between generations) Key feature of the reform: adjustment of pensions to the general development of income (dynamische Rente / dynamic pension)Key feature of the reform: adjustment of pensions to the general development of income (dynamische Rente / dynamic pension)

3 Pension System: History II 1992: lowering of pension payments 1992: lowering of pension payments 2001: Introduction of the Riester-Rente (Walter Riester, SPD) (Amendment of the Altersvermögensgesetz on 11 May 2001) 2001: Introduction of the Riester-Rente (Walter Riester, SPD) (Amendment of the Altersvermögensgesetz on 11 May 2001) In addition to the Gesetzliche Rentenversicherung (GRV) that works according to the UmlageverfahrenIn addition to the Gesetzliche Rentenversicherung (GRV) that works according to the Umlageverfahren Works according to the KapitaldeckungsverfahrenWorks according to the Kapitaldeckungsverfahren Private retirement pension system, financial support from the state, voluntaryPrivate retirement pension system, financial support from the state, voluntary

4 What is a Pension? A regular payment that is intended to allow the saver to subsist without working at a later point in his or her life. A regular payment that is intended to allow the saver to subsist without working at a later point in his or her life.

5 Comparison between German and English pension system In England there are four common pension schemes In England there are four common pension schemes 1)Personal pension 1)Personal pension 2)Stakeholder pension 2)Stakeholder pension 3)Company occupational pension 3)Company occupational pension 4)Basic state pension (BSP) 4)Basic state pension (BSP)

6 Germany In Germany there is a Pay As You Go public pension system In Germany there is a Pay As You Go public pension system Size of pension fund is derived from* Size of pension fund is derived from* *sum of accumulated earning points *sum of accumulated earning points *the adjustment factor *the adjustment factor *type of pension and its value *type of pension and its value

7 Statistics to show differences in pensions for men and women Under Schroeders government Under Schroeders government Average mans pension = 1015Average mans pension = 1015 Average womans pension = 508Average womans pension = 508 (in Western Germany)(in Western Germany)

8 Merkels Pension Reform Induced by fewer workers having to support more retired people. Induced by fewer workers having to support more retired people. People are living longer and birth rates are in decline People are living longer and birth rates are in decline 40% people between years of age are still working-very low percentage! 40% people between years of age are still working-very low percentage!

9 Action Taken Aim to raise pension age from 65 to 67 Aim to raise pension age from 65 to 67 Encourage employers to offer defined contribution schemes. Encourage employers to offer defined contribution schemes. Ultimately hope to decrease the cost of the pension bill in an economically struggling Germany. Ultimately hope to decrease the cost of the pension bill in an economically struggling Germany.

10 Schröders Government; How pensions affected the people Schröder's government is credited with implementing Agenda 2010; this agenda included the following; Schröder's government is credited with implementing Agenda 2010; this agenda included the following; cuts in the social welfare system (national health insurance, unemployment payments, pensions), cuts in the social welfare system (national health insurance, unemployment payments, pensions), lowering taxes lowering taxes reforming regulations on employment and payment reforming regulations on employment and paymentConsequences After 2002; SPD lost support due to the third way combining the ordoliberal "social market" with neo- liberalism. After 2002; SPD lost support due to the third way combining the ordoliberal "social market" with neo- liberalism.ordoliberalsocial marketneo- liberalismordoliberalsocial marketneo- liberalism It was considered by many people to be dismantling of the German welfare state!! It was considered by many people to be dismantling of the German welfare state!! High unemployment rate still remained a problem for Germany High unemployment rate still remained a problem for Germany

11 Under Merkels Government… Appointment of Merkel; the public was eager for the government to get to work after six months of political turmoil. Appointment of Merkel; the public was eager for the government to get to work after six months of political turmoil. more pro-American outlook- similar pension system as Germany more pro-American outlook- similar pension system as GermanyAIMS One measure taken; raising the top income tax rate One measure taken; raising the top income tax rate increasing a value-added tax from 16 to 19 per cent. increasing a value-added tax from 16 to 19 per cent. VAT increase is being put off till 2007 VAT increase is being put off till 2007 One problem; High labour costs One problem; High labour costs Economic investments e.g. increased parental leave benefits and research spending Economic investments e.g. increased parental leave benefits and research spending Rise in retirement age to 67 and decrease in pensions Rise in retirement age to 67 and decrease in pensions Perusal of trusting relations with United states Perusal of trusting relations with United states

12 And for the part-time workers?

13 In the EU Part time employment = 18.5% of total employment in Europe Part time employment = 18.5% of total employment in Europe Netherlands, the United Kingdom, Sweden and Germany = highest levels of part-time working Netherlands, the United Kingdom, Sweden and Germany = highest levels of part-time working More than 2/3 chose a part-time work More than 2/3 chose a part-time work

14 A good opportunity for old people 1984: Trading banking and Insurance Trade Union (Gewerkschaft Handel, Banken und Versicherungen, HBV) 1984: Trading banking and Insurance Trade Union (Gewerkschaft Handel, Banken und Versicherungen, HBV) Part-timers must not be excluded from pension Part-timers must not be excluded from pension 2000: 4th Euro Introduction Act (Euro– Einführungsgesetz) 2000: 4th Euro Introduction Act (Euro– Einführungsgesetz) block model with part-time working in old age block model with part-time working in old age

15 A good opportunity for old people (contd.) 2003 Third and Fourth Acts for Modern Services on the Labour Market: 2003 Third and Fourth Acts for Modern Services on the Labour Market: People can work older with part-time jobs as on 1 July 2004 People can work older with part-time jobs as on 1 July Old-age Pensions Insurance Sustainability Act: 2004 Old-age Pensions Insurance Sustainability Act: Increase of the age limit to 63 between 2006 and 2008 Increase of the age limit to 63 between 2006 and 2008

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17 But not only for old people A lot of mothers are employed part-time due to care of children A lot of mothers are employed part-time due to care of children Does not lead to unreasonable losses of pension entitlements Does not lead to unreasonable losses of pension entitlements Conditions: Conditions: 1. Child is 10 years old maximum 2. Where nursing care is provided 3. Special cases if more than 2 children If employee earns less than 155 If employee earns less than 155

18 The Economy and Pensions German Population getting older- but only work until 65- government stops receiving taxes and contributions German Population getting older- but only work until 65- government stops receiving taxes and contributions 2050: Worker: Pensioner ratio 2:1, today 5:4 2050: Worker: Pensioner ratio 2:1, today 5:4 Schroeder: Agenda 2010: reform pension system Schroeder: Agenda 2010: reform pension system Need to discourage early retirement: Need to discourage early retirement: 50+ initiative 50+ initiative

19 The Economy cont… State pension deficit of 2.8billion State pension deficit of 2.8billion Increase contributions rather than reduce benefits Increase contributions rather than reduce benefits German market for private and occupational pensions- 5 times that of today- 5trillion German market for private and occupational pensions- 5 times that of today- 5trillion Unemployment Unemployment % % % % Annual Growth -0.1% Annual Growth -0.1% Predicated to be below 1% next year Predicated to be below 1% next year billion shortfall in pension insurance system billion shortfall in pension insurance system

20 Merkel Has Arrived… In order to deal with economic and pension crisis… Raise interest rates Raise interest rates Increase VAT to 19% over next 2 years Increase VAT to 19% over next 2 years Reduce level of unemployment Reduce level of unemployment Increase age of retirement to 67 (discourage early retirement) Increase age of retirement to 67 (discourage early retirement) Create employment for over 50s Create employment for over 50s Increase contributions Increase contributions Encourage private pensions Encourage private pensions

21 The Economy cont… If these reforms not enforced, pensions set to account for 18% of GDP in near future If these reforms not enforced, pensions set to account for 18% of GDP in near future European level, Germany state pays relatively high amount into pension system European level, Germany state pays relatively high amount into pension system Predicted to rise by another 3% Predicted to rise by another 3%

22 CONCLUSION… Current PAYG system needs to be reformed otherwise the state will not be able to fund it Current PAYG system needs to be reformed otherwise the state will not be able to fund it Need more uniformed system Need more uniformed system Arrival of the new Chancellor- Angela Merkel gives rise to new hope for a swift and affective pension reform Arrival of the new Chancellor- Angela Merkel gives rise to new hope for a swift and affective pension reform


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