Old-age pension: Pension financing: Depends on the capital market

Old-age pension: Pension financing: Depends on the capital market


The stock exchange boards, as well as major investors, can continue to look forward to what is happening on the trading floor in the future. The average retiree probably has less to cheer about.

Photo: dpa/Arne Dedert

At the beginning of March, ministers Hubertus Heil and Christian Lindner presented a draft law for a new pension reform. How do you rate this?

The fact that the pension level is to be stabilized at 48 percent by 2039 is a positive development. Although this does not mean that the red-green pension reform of 2001 will be completed, it will at least temporarily override a central mechanism: the effect of the pension adjustment formula, which leads to a permanent decline in the pension level.

FDP parliamentary group leader Christian Dürr, however, emphasizes “generational capital” in the draft. How do you see that?

The funded procedure in pension insurance already existed under Bismarck. And there are good reasons why we have been financing the system using the much more crisis-proof pay-as-you-go system since the 1950s. In the best case, “generational capital” remains a small add-onwhich hopefully won’t cause any damage.


WSI, Florian BlankPhoto: Hans Böckler Foundation

Hans Böckler Foundation

Florian Blank has headed the social policy department of the Economic and Social Sciences Institute (WSI) of the DGB-affiliated Hans Böckler Foundation since 2009. The political scientist published on the pension systems in Austria and Germany.

What is the idea of ​​“generational capital”?

The idea of ​​the draft bill is to use “generational capital” to open up an additional source of financing for pension funds in order to be able to reduce pension contributions somewhat in the future. The state wants to build up a capital stock through debt in order to invest in the capital markets. The hoped-for income goes towards repaying the interest and the rest goes into the pension. The draft bill predicts that from 2036 onwards an average of 10 billion euros will flow into pension funds annually and thus the contribution rates could be reduced by 0.4 percentage points.

That doesn’t sound like a major reduction in non-wage labor costs through speculation on the capital market.

What remains to be clarified in the legislative process is whether the contribution rates will ultimately remain the dynamic element in the pension system or whether the federal government will ensure a stable subsidy in the event of capital market fluctuations. But there is of course the risk that future governments will expand these capital market rents, which I also see as very problematic in view of international examples.


It is sometimes assumed that the capital funding process will become self-perpetuating. But in Sweden, which has a mixed system of pay-as-you-go and capital pensions, pensions have now been cut due to developments on the capital markets. The state stepped in to make up for the losses. Politicians will always have to deal with the question of fair and secure pensions. And investing in global financial markets always comes with risks. When it comes to “generational capital,” we don’t know who bears the risk if investments on the capital markets do not bring the expected profit. Will the federal government then step in or will the contributors step in?

Are the uncertainty of capital preservation and returns the only problem?

Of course, the general question arises as to how “generational capital” and investments are democratically controlled. Do we want our pensions to come from profits from fossil energy or defense companies that may also build nuclear weapons? At what points can and should politics make guidelines in order to help shape investment decisions? With “generational capital,” the decision about investments should be made by “professionals,” a board of directors supported by a board of trustees. But who controls the “professionals”? The draft bill states that which environmental and social standards are relevant for an investment should be anchored in an investment guideline. At the same time, investments should be return-oriented and globally diversified.

But despite all the criticism of capital pensions: many young people and precarious workers no longer believe that they will receive more than basic security in old age.

Precarious trajectories lead to low pensions and a pension system will always reflect individual trajectories to a certain extent. How the situation develops in the future will of course depend on the development of wages and the labor market. There I see the central adjusting screw. It is also a political decision as to which goals we aim to achieve in pension insurance and how we finance it. The German pension system initially aims to provide wage replacement for employees. Child care is also taken into account in the pension. We need to discuss how we want to deal with longer periods of unemployment or solo self-employment.

High-income citizens, including the MPs who decide the future of our pensions, are exempt from paying contributions. Wouldn’t it be important for the future of pensions that the rich also pay?

Austria has managed to create a stable pay-as-you-go pension system in which almost everyone is treated equally because the obligation to contribute has been extended to almost all professional groups. But this is of course a sensitive issue that would involve some political resistance.

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