The coalition committee of the CDU/CSU and SPD has agreed on a few benefit improvements in its “small pension package,” such as changes to the disability pension.
IG Metall shows what the plans are worth—and where improvements are still needed:
Partial Disability Pension
What’s planned?
The federal government wants to gradually raise the so-called “credited period” to age 65 by 2024. The credited period plays an important role in calculating the disability pension. On average, those affected begin receiving disability pensions around age 50. At that point, however, they have accumulated only relatively modest pension entitlements. For this reason, under pension law, insured individuals are treated as if they had remained insured until a certain age and—to put it simply—had continued to earn the same amount as before. This period is called the “additional credit period.” Currently, it ends at age 62. The planned extension by three years will increase the disability pension by up to seven percent, according to the Federal Ministry of Labor and Social Affairs (BMAS).
What are the benefits?
Reduced earning capacity is associated with an extremely high risk of poverty: Those who began receiving a (full) disability pension in 2015 received an average of 711 euros per month. In the future, the average would be around 760 euros—less than the basic income support, which stands at about 800 euros. And significantly less than the average old-age pension for men of 1,014 euros (in western Germany).
The government’s plans are therefore a step in the right direction, but they are far from sufficient: The timeframe for implementing the measure is far too long. Furthermore, only future retirees will benefit. And: Even in the future, nearly all disability pensions will be permanently reduced—by an average of 85.23 euros per month. These reductions are unfair. No one chooses to become disabled voluntarily.
Uniform Pension Law in East and West
What’s the plan?
More than 25 years after German reunification, different pension laws still apply in the East and West. Pensioners in the East receive less money for each so-called pension point. In return, wages in the East are valued higher when calculating pension points.
The government intends to gradually eliminate these differences. Starting January 1, 2025, the same laws will apply in both East and West.
What are the benefits?
Equal pension laws in East and West—a long-overdue step. However, it will not only create winners but also losers—especially among current and future workers in the East. This is because their wages are lower than those in the West, yet in the future they will no longer be adjusted upward when calculating pensions. Those affected must expect reductions in their pensions—unless income equalization also moves forward.
To offset this effect, the harmonization of pension law must therefore be accompanied by measures to prevent poverty. The coalition still intends to review such measures. The following applies to all measures: They must be financed from tax revenues as tasks for society as a whole and as consequences of the reunification process. Furthermore, income equalization between East and West must not be lost sight of.
Strengthening Occupational Pension Plans (bAV)
What is planned?
The governing coalition has agreed to strengthen occupational pensions: occupational pensions will only be counted toward basic social security benefits to a limited extent; the so-called “double contribution” under the Riester pension scheme within occupational pension plans will be eliminated; and employer-funded occupational pension plans for low-wage earners will be promoted.
In addition, joint occupational pension schemes established by the social partners are to be given preferential treatment. They are to have the option of introducing a pure defined-contribution plan, under which there would no longer be any minimum or guaranteed benefits. The social partners are to be able to establish legally sound models for automatic salary conversion (“opt-out or option models”).
Employers should be required to pass on at least 15 percent of the social security contributions saved through payroll deduction. And employers should make an additional contribution to the joint occupational pension institutions to build up a reserve fund.
What are the benefits?
The goal of the Occupational Pension Strengthening Act is commendable: to increase the prevalence of occupational pension plans, particularly in small and medium-sized enterprises and among lower-income employees. Many of the planned regulations can indeed promote these goals. Some of IG Metall’s proposals have been implemented.
However, the draft bill still requires further amendments: regarding so-called “double contributions” and to mandate that employers pass on the savings on social security contributions to employees. Furthermore, provisions to expand the co-determination rights of works councils are missing.
Waiving guaranteed benefits in occupational pension plans should, in principle, only be possible on the basis of collective bargaining agreements. The same applies to the automatic inclusion of all employees in an occupational pension plan financed through deferred compensation.
The risks to employees arising from the elimination of guaranteed benefits must be minimized. This requires, as a matter of necessity, an appropriate safety net contribution and the establishment of a reserve fund by the respective occupational pension provider. Over the course of an employee’s working life, the pension capital must be backed by guarantees of varying scope: the closer retirement approaches, the higher the guarantees must be.
Solidarity-Based Lifetime Achievement Pension
What is planned?
In their coalition agreement, the CDU/CSU and SPD agreed on a “solidarity-based lifetime achievement pension” to combat or prevent poverty in old age. The Federal Ministry of Labor and Social Affairs (BMAS) intends to further examine various models.
What are the benefits?
Improvements to benefits are necessary to combat poverty in old age. In its pension proposal, IG Metall calls for periods of low earnings to be given greater weight in pension calculations.
Effective contributions must once again be made to the pension fund for periods of long-term unemployment, and time off work—for example, due to raising children or providing family care—must be given greater consideration. The basic income support must be raised, and tax-exempt allowances are needed for all income from retirement savings.
All measures to combat poverty in old age should be financed from (additional) tax revenues as a societal responsibility.
