Pension: nahles made a massive miscalculation – and is now being rewarded for it

Since 2014, employees have been able to retire without deductions after 45 years of insurance. This is one thing above all for the German social security funds: expensive. The idea was a prestige project of the then SPD Labor Minister Andrea Nahles, who will now in all likelihood move to head the Labor Agency. There she hopefully shows more foresight. A commentary.

Last year, the pension insurance again approved hundreds of thousands of applications for the deduction-free pension after 45 years of work: 254.337 Working people given green light for early pension. They will all benefit from the SPD’s campaign hit, the so-called pension at 63.

They should actually thank Andrea Nahles (now 51) for this. After all, it was she who, as SPD Minister for Labor and Social Affairs, paved the way for this pension, which was introduced in July 2014. Today, she is a top politician out of office – but will now in all likelihood return as the new head of the Federal Employment Agency and celebrate her comeback. This was announced by the Confederation of German Employers’ Associations (BDA) and the German Trade Union Confederation (DGB) on Tuesday.

Nahles has miscalculated

In view of such prospects, one can only fervently hope that she, as the new head of Germany’s largest authority, will show more foresight than she did with her pension gift. Thus, the price for the patronage policy has turned out to be higher than calculated by Nahles in the run-up to the early pension introduction. This is because there are fewer of the sprightly retirees who still want to be gainfully employed at an advanced age than the former federal labor minister had envisioned.

Last year, 2.5 percent fewer people took advantage of the pension at 63 than in the previous year. But since 2015 – the first full year after the introduction of the pension at 63 – a total of 1.74 million insured people have already applied and claimed the expensive promise of Nahles. That is 340.000 more than the federal government had originally calculated. A calculation error that places a considerable burden on the pension fund.

Because those affected have paid into the pension fund for so long, their payments are high: an average of 1547 euros a month. The total expenditure for the deduction-free pension will therefore already rise in the spring of 2022 for the first time over 3 billion euros per month, as the "Bild" newspaper reported on Tuesday with reference to data from the German Pension Insurance Fund.

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The pressure on the pension fund continues to rise

As a result, the consequences of Nahles’ error also further fuel the generational conflict over the future financing of the public pension system. The deduction-free pension and its additional costs are particularly problematic because more and more baby boomers (1960 and later) are reaching early retirement age. This would already become a burden without the early retirement policy of Nahles and the SPD.

Because: More and more contributors will fall away, while at the same time the number of pensioners is growing rapidly: This year alone, more than 300.000 more people retire than enter the labor market, the Institute of the German Economy (IW) recently calculated. By 2030, the demographic gap in the labor market is expected to add up to five million people.

For the pension fund, this means that the already massive expenditures will continue to rise in the coming years, while revenues will decline. Yet the contributions that employees pay into the pension fund are already far from sufficient today. The government will therefore have to put more and more taxpayers’ money into the pension fund. For the first time, the figure for 2020 was more than 100 billion euros. That’s almost a third of the federal budget.

Despite this huge financial problem of the German pension, however, the new traffic light government does not want to touch the pension contributions, the pension level or the retirement age. However, this sitting out of a long overdue pension reform makes the situation – that is the nature of procrastination – even worse only more serious: If the current guarantees for retirees and contributors were to be continued, the federal budget would be in acute difficulties by the 2040s at the latest. "That would blow up the federal budget and would not be financeable even with massive tax increases," said Munich-based economist Klaus Schmidt, who chairs the scientific advisory board at the German Ministry of Economics.

The federal finance minister would then have to transfer about half of his entire budget to the pension insurance fund in order to be able to continue financing the pension.

More immigration is needed to save the pension – and Nahles is supposed to fix it

To counteract the trend and avoid placing an even heavier burden on younger generations of taxpayers, experts say there are then two main measures left to limit the mess: increasing labor market-driven immigration or admitting a greater number of people into the labor market.

But what sounds so nice and simple in theory is a real pain in the ass in practice, as IW economics expert Holger Schafer knows. What is needed is a "huge net immigration" of well-educated workers, which has never been achieved on the scale required so far. In the area of labor force participation, too, many potentials had already been exhausted. What’s more, the biggest economic transformation in a long time threatens many jobs anyway.

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The labor market-driven immigration or the increase in labor force participation is therefore a mammoth task, which not only the new federal government and Labor Minister Hubertus Heil are facing, but also the new CEO of the Federal Employment Agency. The agency is expected to play an important role in training for new professions and in combating the growing shortage of skilled workers.

The fact that it is precisely this great responsibility that is now to fall on women, whose insistence on early retirement at 63 caused masses of well-educated people to disappear from the labor market earlier, takes on slightly grotesque features.

But at least (we don’t just want to paint a black picture here) she could at least do damage limitation in this position and recoup the billions that her early retirement has cost the insurance companies. "Andrea Nahles – the savior of the pension" – this would be an unexpected twist for the daily newspapers of this country.

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