Elderly face growing risk of poverty, warns OECD

Germans face a growing risk of living out their old age in poverty as low-earners fail to set aside enough for their retirement, the Organisation for Economic Cooperation and Development has warned.

Elderly face growing risk of poverty, warns OECD
Photo: DPA

“Germany is right at the back internationally in terms of retirement security for low-earners,” said Monika Queisser, head of the OECD’s section on social policy in an interview with Die Welt newspaper.

“The strict connection between contributions and service, results in people who have worked for their whole lives and have only had a low income being in danger of poverty in their old age.”

She said those people who had gaps in their working lives due to unemployment or due to raising a family were particularly at risk of ending up poor when they got old. A further problem was the limited number of people paying into pension schemes – in Germany only those with jobs are included, leaving many self-employed people either insufficiently covered or without any pension plan at all.

“Old-age poverty is not yet so widespread, but it will increase markedly if one does not take precautions now,” she said. She praised the fact that discussions are planned for this week, involving Labour Minister Ursula von der Leyen, trades unions and associations as well as social policy experts. A conference is set to start on Wednesday.

Yet Die Welt reported that von der Leyen does not intend to offer much change – the paper said on Tuesday that she had already completed her concept for a small pensions reform, which would not involve significant increases to low pensions.

Only those who have made at least 45 years of pensions contributions and yet still do not have enough income to clear a basic level, would be granted a top-up payment.

Other tweaks should make things slightly more comfortable in the light of the statutory retirement age being raised to 67, but the cost of the changes has been capped to €2 billion, said von der Leyen.

Opposition politicians have accused her of not taking the dangers seriously.

Other countries such as Denmark and Holland shared around pension provision much more than Germany, said Queisser, while New Zealand guarantees all pensioners a state-funded payment of 40 percent of the average wage, which is granted to everyone, regardless of other income.

She said Germany could manage to improve its situation, praising the fact that over the last few years private options have been made more attractive to those on lower wages.

The Local/hc

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EXPLAINED: Could people in Germany soon be working until the age of 68?

A dramatic warning issued by an expert commission to the government has said that Germany faces a “financial shock” if it doesn’t raise its retirement age soon. So will we all have to work for longer in the near future?

EXPLAINED: Could people in Germany soon be working until the age of 68?
An elderly man uses a computer. Photo: dpa | Andreas Gebert

A report issued this week by the Economy Ministry’s advisory council warned that Germany will have to deal with “shocking increases in financing issues for the statutory pension system from 2025 onwards”.

The council said that the only solution was the unpopular step of raising the age of retirement to 68. But the proposal has been met with fierce criticism from left-wing parties.

What is the current retirement age in Germany?

The age of retirement in Germany has been slowly increasing since the year 2012, when a government reform raised it from 65 to an eventual age of 67.

Currently, the age of retirement is being raised by a month each year. People who were born in the year 1956 and are celebrating their 65th birthday this year will have to wait until they are 10 months past their 65th birthday before they can celebrate their retirement.

READ MORE: How does Germany’s pension system measure up worldwide?

Then, starting in the year 2024, the age of retirement will be raised by two months every year until it hits a ceiling of 67. That means that people born in the year 1964 will have to wait until their 67th birthday before they can start to enjoy the third phase of their life.

Why are government advisors calling for it to be raised even further?

As Germans live longer while also having less children, the demographic makeup of society is changing dramatically. While the proportion of working age people to retirees is currently three to one, it is expected to increase to three to two by the year 2060.

That means that there are ever fewer working age people paying into the state pension system to support a pay-outs for an ever larger population of pensioners.

The expert commission’s report predicted that, should current demographic trends continue, the proportion of the state budget that would flow into the pension system would rise from the current size of 26 percent to 44 percent by 2040.

“That would break the federal budget and would not be financeable even with massive tax increases,” warned Klaus Schmidt, who led the commission.

He further warned that increases in state financing of pensions would come at the cost of investment in digital infrastructure and education.

How has the report been received?

It has been met with stinging criticism from left-wing parties.

The left-wing Linke party described it as “an anti-social act of cheek” and promised to “defend the rights of pensioners with tooth and claw.”

They point out that one in five Germans still don’t live to their 69th birthday.

“The numbers speak for themselves: the higher the retirement age, the fewer people who will ever be able to enjoy their pensions,” the party’s social affairs expert Sabine Zimmermann said.

SEE ALSO: Germany plans reforms to avoid double taxation on pensions

The party say that, because life expectancy is higher the more one earns, raising the retirement age effectively means redistributing wealth from the poor to the rich. They want the retirement age to be brought back down to 65.

Praise for the report came from the Federal Employers’ Association, who said that “this conversation needs to be had, and it needs to be had honestly”.

The association warned that if action wasn’t taken on pensions, then Germany would soon have more people receiving benefits than paying into the system.

Are the report’s findings likely to be implemented?

There is almost no chance that the reports finding will be implemented by the current government.

With a national election just over three months away, the coalition won’t want to back a policy proposal likely to unpopular on the doorstep.

The Social Democrats have out and out rejected the report. SPD Chancellor candidate Olaf Scholz accused the expert commission of getting its maths wrong.

Describing the report as a “horror scenario” that was intended to create fear, Scholz said that “I won’t discuss any further increase in the retirement age.”

READ ALSO: Old age poverty in Germany set to rise significantly

The CDU also distanced themselves from the findings.

Economy Minister Peter Altmaier (CDU) said that the retirement age should remain at 67, adding that ‘“that has been my opinion for years”.

After the election, the tone from the CDU could change though, as warnings about the financial viability of the current system have come from various quarters in recent months.

Similar proposals to increase the age of retirement have come from economic institutes and the Federal Bank, all of which predict that the current arrangement is not sustainable in the long term.

The Federal Bank’s proposal goes even further, encouraging the government to push the retirement age up to over 69.