Old Age Poverty Instead of Old Age Provision: What Is Going Wrong and Which Reforms Are Required for a Sustainable Pension System?

The level of pension payments is falling constantly and company and/or subsidised private pension schemes cannot fill the gap in old-age provision. Experts warn of the growing threat of poverty in old age. According to Lars P. Feld, Anabell Kohlmeier and Christoph M. Schmidt, German Council of Economic Experts, old age poverty is fortunately not a socially relevant problem today. Reforms to the state pension system have helped to secure the system’s stability with comparatively moderate increases in contributions until at least 2029. This, however, only applies if the system continues to exist in its present form and is not undermined, as was the case with the pension for mothers and retirement at 63 for long-term contributors in 2014. In the years ahead, however, the number of recipients of basic pensions will continue to rise. Poor labour market integration, in particular, is driving the risk of poverty in old age. Peter Hanau, University of Cologne, describes the conditions that must be satisfied so that company pensions can become a supporting column of pension provision. Dirk Kiesewetter, University of Würzburg, sees inter-company old age provision as, “the last chance for a market-economy solution.” Jochen Pimpertz, Institut der deutschen Wirtschaft Köln, thinks that the current debate is missing the core of the problem. The root of the problem of poverty in old age can only be resolved via the labour market, and not through the pension system. For that reason the reform proposals should primarily focus on assistance for persons with a continuously interrupted working history. At the same time, adjustments to the state pension system are required that follow along the reform path that has been embarked upon. Although not very popular, the simple equation applies to the state pension system that younger contributors have to work longer for the same pension entitlements than the generations before them. Martin Werding, Ruhr University of Bochum, sees the risk of the old-age poverty level rising, but feels that this should not, however, be dramatised. In Werding’s view, effective and sustainable financially-viable approaches to avoiding this risk lie in the continuous raising of the statutory retirement age within the state pension system on the one hand, and the expansion of complementary old-age provision via a corporate or private pillar on the other.