Future of pensions and care: Work longer, pay more

taz FUTURE TWO | The relationship between the young and the old is about the distributional question of how much dignity and how much carefree life the young want to grant their old people in their last years – and what the old people want to contribute to this through their own efforts.

Pensions and long-term care insurance are the instruments with which the care of the elderly must be regulated by the state and by law, because family ties as self-regulation of these care obligations of the young for their elderly have long since ceased to function. In the pay-as-you-go system, the young, the working contributors, do not finance their own pensions with their pension and long-term care contributions, but rather the pensions of the elderly who are entitled to a pension. The amount of these pensions for the 21 million pensioners in Germany is not definitively fixed. It is tied to their working careers (45 years of work for a full pension).

Pensions increase annually as young people’s wages increase. The average pension for men who meet the requirements is currently 1,664 euros and for women 1,355 euros. Average specifically means that the majority of pensions – especially for women – are far below these amounts. The pensioners then pay their own contributions to health and nursing care insurance. If pensions are significantly higher, income taxes will also apply. The gross pensions are around 48 percent of the last gross salary.

Demographics and responsibility

The direct financing of pensions is a reflection of the responsibility of the young for the old. This responsibility is determined by the facts of demographics. If there are many young people and fewer and fewer old people, there is no problem. If there are more and more old people whose pensions have to be financed directly at the statutory level by fewer and fewer young people, then their pension and care contributions must increase. If contributions to pension financing are not sufficient, then direct subsidies from the federal budget must be further increased. In 2022 it was 109 billion euros, which is 20 percent of the total budget.

From 2025 to 2035, the baby boomers will retire. These are the ones with too few children of their own. If the current pension level is to be maintained for them, pension contributions from young people and the federal subsidy from all taxpayers must be significantly increased. The pension contribution will solidify at the level then reached until around 2050, because only then will the boomer cohorts have finally retired.

Increasing age means increasing stress

Until then, there will be higher burdens for long-term care insurance, as increasing age will cause higher care costs. It is assumed that contributions to nursing care insurance will rise from today’s 3.4 percent gross to 5 percent by 2030 and to 7 percent by 2040.

The income from pension and nursing care insurance has increased due to the increasing number of women in full-time work, the influx of workers from Eastern Europe (which is currently declining again) and the voluntary longer working hours of many people; However, this cannot cover the additional financial requirements of pension and nursing care insurance for the next few decades. Immediate higher birth rates are not to be expected anyway, but that would not change anything, as they would only have a positive impact on pension and nursing care insurance in about 20 years. In addition, the fact that jobs subject to contributions are eliminated as a result of the ecological transformation, which are only slowly being replaced in green industries, must be taken into account as a reduction in revenue.

The current taz FUTURZWEI

taz FUTURZWEI N°28: Think ahead

■ To the current edition

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About language and words that hinder further thinking.

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Suggestions on how to compensate for this loss of revenue have long been part of public debate. Here is the summary.

1. Pension cuts for the elderly below the current 48 percent of the last gross salary should not be allowed, as the Chancellor demands (and the FDP questions). As a contribution of the elderly to the deficit financial situation of the pension and nursing care insurance caused by them due to too few children, the retirement age for everyone will be increased to 72 years. The pension at 63 will be abolished without replacement. The Chancellor rejects both. The mother’s pension and the increase in disability pensions will be retained, but further new – socially justified – benefits from the pension insurance will be waived.

2. Old-age pensions for everyone are capped at a basic pension of at least 1,600 and a maximum of 1,800 euros.

3. To finance pension and nursing care insurance, contributions are collected from all types of income outside the labor market.

4. In order to secure young people’s own pensions, a compulsory company pension will now be introduced for all workers as the second pillar of the system.

5. Gambling with tax money, which is supposed to lead to additional income that can be distributed over a manageable period of time, is avoided. Instead, the deficit financing of pension insurance from the federal budget will be permanently established.

6. For the growing costs of long-term care insurance, a comprehensive priority is given to using up all assets of the person requiring care over public support. The children of those requiring care are only included in the care costs if certain living income levels are exceeded.

The hard reference to demographic facts

These proposals are characterized by a strict reference to demographic facts. They ensure the old people’s expectations that their life’s achievements will be recognized by working longer hours and at the same time oblige the young, in addition to their high contributions to pensions and the care of the elderly, to build up additional security for their own pensions for their old age.

The rising contributions of young people to pension and nursing care insurance in the coming years cannot be avoided, even by gambling, if the pensions of the elderly are not to be reduced. A rising tax rate for working people to up to 50 percent of their gross income is in order to ensure a dignified end to the old age and to provide retirement security for working people, even if it will significantly reduce the freely available income of young people for many years to come.

UDO KNAPP is a political scientist and regularly comments on political events for the magazine taz FUTURZWEI.