March 14, 2004
THE REICH BE SINKIN':
Pensions sink with workforce: Parliament passes legislation that will radically change state retirement fund (Elise Kissling, 3/12/04, Frankfurter Allgemeine Zeitung)
In the future, the level of retirement benefits will depend on the size of the workforce in relationship to the number of retirees. Pensions will automatically decline as the German population shrinks over the next 25 years.The government hopes the legislation will keep payments into the pay-as-you-go national pension system below 22 percent of gross wages in 25 years when there will be just over two workers to support each retired person.
Today, the working population is still four times as large as the number of retirees. But a very low fertility rate of 1.3 children per woman and a rapid rise in life expectancy mean that Germany will experience a particularly dramatic change in the age structure over the next 30 years.
Employees pay 19.5 percent of their gross salary into the system, which costs almost 12 percent of gross domestic product. That is 2.5 times as much as the U.S. Social Security system. But in contrast to other state pension plans, Germany's system offers a high level of retirement income based on a person's earnings history.
A last-minute concession made to the left-wing of Chancellor Gerhard Schröder's Social Democratic Party has put the goal of keeping pension pay-outs in line with contributions to the system out of reach. It would prevent the government from reducing the average pension rate for a person with 45 years in the labor force to below 46 percent of net wages.
“It's nonsense. In all likelihood, we know that 46 percent of net income will be incompatible with a rate of 22 percent,“ said Axel Börsch-Supan, the director of MEA research institute, who played a key role in working out the new calculation method. “It would work if you increased the retirement age by two-and-a-half years. But the crew of people that wants to keep benefits at 46 percent is also against increasing the retirement age.“
The orchestra just kept on playing... Posted by Orrin Judd at March 14, 2004 11:41 AM
Thanks for the tip of the cap to Micheal Ray Richardson.
Posted by: Foos at March 14, 2004 9:16 PMFirst, the US, pay in rate is not the 7.85 gross FICA. You must include the employers equal share and gross it up and remember that a chunk of that (2.9% IIRC is medicare not OASDIC which, inter alia funds the social security pension).
Second, if a worker pays in 19.5% of annual salary and it accumulates interest at 3% for 45 years it would accumulate a fund equal to 18 times the workers life time annual average earnings, roughly. So either my math is off or their benefit calculation is squwed (3 highest years?) or I dont understand.
Posted by: Robert Schwartz at March 14, 2004 11:40 PM