Lower Contributions and a Pension Supplement: a Sustainable Pension Policy?

Two major pension policy questions are currently under debate and are to be decided upon soon, namely should the contribution rate to the state pension scheme be reduced, and should a pension supplement be introduced to lower the risk of poverty in old-age? Hans Fehr, University of Würzburg, looks at the issue of how to use surplus funds in the pension system as more of a short-term "luxury problem". Poverty in old-age, on the other is a future problem that can already be foreseen and that politicians need to confront now. However, the proposed pension supplement does not go far enough, since it will only affect a small group of people. Fehr sees a sharper progression of the German pension system as a solution. This would improve both allocative efficiency and distributive justice. For Franz Ruland, Chairman of the German government's Social Advisory Council, the pension supplement would constitute a break with the pension contribution system that would lead to injustice. In his view, a fair system must remain a benchmark for future reforms. Gisela Färber, German University of Administrative Sciences Speyer, sees further labour market reforms as the key to poverty-free pensions. Overall, she warns of the danger of throwing the principally accepted rules of the state pension insurance scheme demographically off balance again with discretionary interventions and new benefits. Annelie Buntenbach, a DGB board member, argues against a reduction of the pension contribution rate and claims that this would use up the pension system’s capital reserves within just a few years. She proposes an alternative contribution rate with the DGB concept.