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Wednesday, September 03, 2003

German Pension Reform

Details of the proposed German pension reform. Note the claim is not that these reforms will actually be sufficient, but that these are the best Schroeder can hope to introduce now. They start the ball rolling, as it were.

A MUCH heralded commission chaired by Bert Rürup, one of the few top German economists who get their hands dirty in politics, has at last told Germany's Social Democratic-led government how to reform the country's creaking public-pensions system. In the commission's view, pension contributions should be capped (at 22% of monthly gross salary), despite an ageing population. More strikingly, Mr Rürup's commissioners want to raise the legal retirement age to 67 from today's 65, adding a month a year between 2011 and 2035. They have also proposed a new formula to calculate pensions, which would take into account the age composition of the population. Most painfully, Germans would have smaller incomes to retire on: 40% of average gross earnings instead of the current 48%.

These suggestions are milder than the minimal changes that more radical economists say are needed to put public pensions on a stable footing. But they are probably the most ambitious that Chancellor Gerhard Schröder has any hope of implementing.
Source: The Economist

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