Pensions: Only inflation is rising faster – economy

Germany’s retirees can expect a significant increase in pensions this year. According to the Federal Ministry of Labor, pensioners in western Germany will receive 4.39 percent more money as of July 1, and 5.86 percent in eastern Germany. That is significantly more than the German pension insurance (DRV) had predicted in the autumn.

With the adjustment, the current pension value is now the same in West and East, because of the higher wage increase in the East, the pension adjustment is even achieved a year earlier than legally stipulated, the Ministry of Labor explained. So far, the pension level in East Germany is still slightly lower than in the West. According to the law, at least 99.3 percent of the western value should have been reached this year. However, because wages in the east have increased more than in the west, the current pension value in the east is now being raised to the value in the west, which means that the same standards apply.

The background to the unexpectedly positive development for pensioners is the stable situation on the labor market. Despite the corona pandemic, the war in Ukraine and the ensuing energy crisis, there has been no mass unemployment. On the contrary, people have kept their jobs or even found new ones, and many companies are looking for additional employees. The number of employees subject to social security contributions has grown to 34.7 million. They in turn pay into the pension fund, which is why the German pension insurance recorded a plus of 3.4 billion euros last year.

Central to the increase in pensions is the development of wages, which have risen significantly depending on the industry. The trade unions have tried to compensate for at least a large part of the loss of purchasing power caused by the sharp rise in prices by demanding high wages. This has now resulted in an increase in pensions.

In addition, the development of life expectancy plays a role for the pension funds – specifically the sad fact that many older people died in the course of the corona pandemic and life expectancy, unlike in previous decades, has therefore not increased any further.

In addition, the so-called sustainability factor also has an effect, which is intended to take into account that more and more pensioners are faced with fewer and fewer contributors. According to the Department of Labor, this factor means that pensions will rise by 0.1 percent less in 2023 than would otherwise have been the case.

Heil is working on a new pension reform

But even the unexpectedly strong increase in pensions is unlikely to be enough to offset the price increases in everyday life. Consumer prices last increased by 8.7 percent in February compared to the same month last year, which is significantly more than the planned increase in pensions. Last year, pensioners in the west received 5.35 percent more and 6.12 percent more in the east. Experts do not expect a sharp drop in inflation by the July 1 deadline. According to a study by the German Economic Institute (IW), people of retirement age are just as badly affected by price increases as the rest of the population.

The Department of Labor acknowledged that the pension adjustment was behind the inflation remains, but this is “only a snapshot”. If you look at the development of the current pension value in the past ten years since 2012, the increase in the west is a total of 26 percent and in the east as much as 40 percent, the ministry said. In the same period, prices have risen by only 20 percent. In addition, recently concluded collective agreements provide for considerable wage increases. “They will then be reflected in the pension adjustment on July 1, 2024.” In the past, the federal government had also pointed out that retirees not only benefit from higher pensions, but also receive compensation through other measures, for example through the extended housing benefit, which benefits many seniors with low incomes, or through the electricity and gas price brake .

Minister of Labor Heil is currently preparing another pension reform. Its stated goal is the legal pension to stabilize in the long term. To this end, the pension level should be permanently fixed at at least 48 percent of the average wage. At the same time, capital is to be invested in the financial markets with the so-called share pension in order to later support the pension funds. Critics, however, describe the plans as insufficient, the higher expenses were too much at the expense of the younger generations.