Minister: Millions at risk of old age poverty

German Labour Minister Ursula von der Leyen has warned that millions of workers face a bigger risk of ending up with inadequate pensions than previously thought.

Minister: Millions at risk of old age poverty
Labour Minister Ursula von der Leyen. Photo: DPA

Von der Leyen set out the figures in a seven-page internal letter to the members of the CDU’s youth wing.

“At stake is nothing less than the legitimacy of the pension system for the younger generation,” said von der Leyen in the letter, details of which were published by the Bild am Sonntag newspaper on Sunday.

According to the numbers calculated by her office, workers who today work full-time for 35 years and earn less than €2,500 before tax per month would receive less than today’s basic pension of €688.

This is because of a fall in basic pensions from 51 percent to 43 percent of the average German wage, she wrote.

The minister said those who make no other provisions than basic pension contributions would have to “make their way to the welfare office” on retirement.

Von der Leyen also claimed that those who work full-time for 40 years would need to earn at least the equivalent of €2,200 per month to be sure of a pension higher than the basic amount.

She added that 40 percent of lower-income earners who pay into the mandatory system did not pay into a private scheme.

“Many do not realise that they are also among those threatened by poverty in old age and that there is a compelling need for them to pay into an additional pension if they are to escape the poverty trap,” she said.

The minister calls for a change to her preferred model for the pension system, which she said would provide for a pension supplements to a level of €850. The idea has met with resistance not only from junior coalition partners the pro-business Free Democratic Party, but also from within von der Leyen’s own conservative Christian Democrats.

“It would cost millions,” FDP leader Philipp Rösler told Welt am Sonntag. “We do not have the money for that in the pension fund.”

The coalition is due to decide on reforms to the pension system this autumn.

DPA/The Local/rc

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Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information: 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK.