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PENSIONS

German pensions to rise above forecasted level this year

Pensions in Germany are to increase more than initially expected, it emerged on Tuesday.

Schlosspart Pillnitz
An elderly couple sit on a park bench in Schlosspark Pillnitz in Dresden. Photo: picture alliance/dpa/dpa-Zentralbild | Sebastian Kahnert

They will go up by 5.35 percent in western states and by 6.12 percent in the former East German states this July, the Ministry for Labour and Social Affairs said.

The news will come as a pleasant surprise to pension-age people in Germany, who had previously been warned to expect a more modest increase of around four percent on July 1st.

The traffic-light coalition had reduced its forecasted pension increases in order to recoup some of the funds used to avoid a cut in pensions in 2021, when the Covid pandemic was still tearing through the economy.

This has been termed the “catch-up” factor. 

Instead, increases of 5.35 percent and 6.12 percent respectively will outstrip the high levels of inflation driving up the cost of living in Germany. 

According to the Ministry of Labour and Social Affairs, the increases still take the catch-up factor into account and will represent a smaller increase than usual. That will allow the government to recoup some the money used to avert a 2021 pension cut over time.

However, Labour Minister Hubertus Heil described the rise as “significant” and a fair increase for those who had worked in the country for several decades. 

READ ALSO: Germany plans reforms to avoid double taxation on pensions: What you need to know

“I am pleased that we can announce a significant pension adjustment today,” he said. “Especially in view of the current challenges – be it rising prices or the international crisis situation – it is important to see that our pension system works.”

The development of pensions should not be decoupled from the development of wages, Heil added. 

Labour Minister Hubertus Heil (SPD)

Labour Minister Hubertus Heil (SPD) speaks in the Bundestag on March 18th. Photo: picture alliance/dpa/dpa-Zentralbild | Britta Pedersen

Pensions linked to wages

The current increase is based on data from the Federal Statistical Office and the German Pension Insurance Association. 

According to the ministry, the development of wages is a crucial factor in determining the increase in pensions. 

This year, the Federal Statistic Office reported average pay rises 5.8 percent in western German states and about 5.3 percent in the former East German states. The actual wage development of people with pension insurance is also taken into account. 

“This has a clearly positive effect this year because periods of short-time work are also included in the contributions,” the Labour Ministry said.

With the short-time work (Kurzarbeit) scheme, wages for employees on reduced hours were topped up by the government to ensure that people did not have to suffer a large cut in wages.

This means that workers essentially earn a higher rate per hour, which also has an impact on pension increases.

But trade unions criticised the fact that the government would be increasing pensions at a lower rate than wages due to the catch-up factor.

Anja Piel, executive member of the German Federation of Trade Unions (DGB), warned: “Further price increases are imminent, especially in energy costs.”

She added that the DGB did not yet know what exactly the federal government had calculated in its complex formulas.

However, the unions would “fend off any attack aimed at further decoupling pensions from wages”, she said. 

An aging population

Germany has been facing challenges for the past few years as an increasing number of people from the baby boomer generation reach pension age.

However, in part due to a rise in skilled immigration and more women entering the workforce, the number of people paying into the pensions pot has also increased.

With a new wave of people expected to retire in the coming decade, the traffic-light coalition plans to tackle the questions of pensions and the country’s aging population by transitioning to a Swedish-style system.

READ ALSO: Pensions in Germany: How the new government plans to solve an age-old issue

This will see insured employees pay around two percent of their income into a private equity pension pot that will be invested in lower risk stocks. 

The other 16.6 percent of contributions will follow the traditional German model and be split between employees and their employers. 

Through this system, the traffic-light coalition has promised not to raise the pension age and to keep the rate stable at 48 percent. 

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MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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