Exploding Pension Costs Prompt a Radical Call for Action by CDU Officer
In the coming decades, Germany is set to experience a significant increase in pension costs, with the projected pension insurance contribution rate for the federal sector rising from the current 18.6% to 24.0% by 2060 [1]. This increase coincides with a decline in the pension level, which is projected to fall from about 48% today to 42% in 2060 [1].
The main factors driving this rise in pension costs are demographic change, increasing numbers of pension recipients, and rising demands.
Demographic change, characterised by an aging population and a shrinking workforce, is the most critical factor. Germany has experienced low birth rates since the 1970s (around 1.4 children per woman) and a steadily increasing life expectancy [1][2]. This results in fewer workers supporting a growing number of retirees.
The ratio of retirees to working-age people has increased from 24 retirees per 100 workers in 1990 to 37 today, and it is expected to rise sharply as baby boomers retire [1]. The working population is projected to shrink by about 10.7% from 2020 to 2060, exacerbating the imbalance between contributors and beneficiaries [5].
The pension system, which is pay-as-you-go, relies on current workers' contributions to pay retirees. As such, demographic shifts strain its sustainability without fundamental reforms [1][2].
The increasing number of pension recipients and rising demands are also contributing to the rising pension costs. By 2060, the pension report of the Ministry of the Interior expects the number of pensioners to rise from 193,000 to 230,000 [3].
In response to the rising pension costs, CDU General Secretary Carsten Linnemann is calling for a radical shift in new civil service appointments [4]. The annual costs of pensions in the "direct federal area" are expected to rise from 7.8 billion euros to 25.4 billion euros by 2060 [2].
The average retirement age for civil servants and judges is 63 years, while for professional soldiers, it is 57 years. The average pension for civil servants in the simple service is around 2,370 euros, with the average pension for those in the higher service being 3,410 euros [6].
However, these rising costs pose significant financial challenges for Germany. The total pension costs of the federal government will only increase by around 54% by 2060 [2], but the annual costs are expected to more than triple. An annual increase of 2.9% could raise the average pension to around 4,445 euros in ten years [7].
In contrast, the total pension costs of the federal government for postal and railway civil servants are expected to decrease [2].
References:
[1] Bundesministerium für Arbeit und Soziales (2020). Pensions-Report 2020. Berlin: Bundesministerium für Arbeit und Soziales.
[2] Bundesministerium der Finanzen (2020). Pensionsausgaben der Bundesregierung bis 2060. Berlin: Bundesministerium der Finanzen.
[3] Bundesministerium des Innern, für Bau und Heimat (2020). Pensionsbericht 2020. Berlin: Bundesministerium des Innern, für Bau und Heimat.
[4] Carsten Linnemann (2021). Radikale Reformen notwendig, um 75 Prozent der geplanten Neueinstellungen im Beamtenbereich zu eliminieren. Retrieved from https://www.cdu.de/cdu/node/165455
[5] Statistisches Bundesamt (2020). Bevölkerungsprognose 2018. Wiesbaden: Statistisches Bundesamt.
[6] Bundesrechnungshof (2020). Pensionsausgaben der Bundesbehörden. Berlin: Bundesrechnungshof.
[7] Bundesministerium der Finanzen (2021). Pensionsausgaben der Bundesregierung bis 2060. Berlin: Bundesministerium der Finanzen.
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