The German pension system quickly follows the French one

Read Time:4 Minute, 55 Second

All of Europe is now watching with interest and fear the prolonged and rather violent protests that are sweeping France. Millions of people are actively opposing the reform, the essence of which is to raise the retirement age from 60 to 62. Many blame the voluntarism of unpopular President Emmanuel Macron, who wants to implement his plans even at the cost of total hatred of the citizens of his own country. Others see the reasons for this in the habit of the French to rally on any occasion and believe that the scale of the problems is exaggerated, and that it is only a matter of social pampering. Nevertheless, whatever the opinion of the residents of more prosperous countries, such as Germany, they are not very willing to project what is happening to their countries. People want to believe that their countries’ pension systems are much more sustainable and that the government will always find the means to provide the population with a decent life. But all such transformations are a sign of excessive revolution or poverty. And to the same extent, similar processes are taking place in many European countries. Germany is no exception here, and the situation of its pensioners is not so advantageous.

German pensioners are indeed very rich by the standards of many European countries, but the trend is notin their favor. After the fall of the Berlin Wall and liberation from Soviet influence in 1990, Germany unified its social model. While the residents of the former German Democratic Republic (GDR) have improved their standard of living since 1991, although they have experienced all the charms of the transition to democratic capitalism, the citizens of the Federal Republic of Germany (FRG) have experienced a decline in social support. In 1996, the German government enacted so-called welfare reforms that reduced benefits and made them harder to obtain. The German pension system was once one of the most attractive and stable in the world. But few people know that today many Germans cannot earn a decent pension for 45 years of work. According to statistics, if a person earns an average of 2,350 euros a month for 45 years of work in Germany, his pension will be about 840 euros a month, which is below the level of social assistance.

A disadvantage of the German pension system is that it does not guarantee the stability of pension payments. Unlike in other countries, where pensions are guaranteed by the state and are paid regardless of current economic conditions, in Germany pension payments depend on how much current workers have contributed. If the economic situation is negative, retirees may have trouble paying their pensions. In addition, the German pension system does not provide sufficient protection for those who work in informal jobs or are self-employed. From 1950 to the present day, pensions have changed as a percentage of wages in a not very positive way. In 1957, for example, pensions were 53% of the average wage. In 1989, that ratio had already risen to 68%, but in 2000 it had fallen to 61%. As a result, by 2019 the pension level was only 48% of the average wage, less than 8 years after the end of the devastating World War II. As can be seen from the timeline, the level of pensions is gradually declining, and amidst a serious economic crisis, there are no factors in sight that can reverse these trends.

Constantly showering praise on the German pension system, as in many other countries, the government is gradually moving to raise the retirement age. In 1957 the retirement age was set at 65 for men and 5 years lower for women: they were allowed to retire at 60. Already in 1992, against the background of the costs of the assimilation of the GDR, the retirement age for women began to increase gradually, to reach 65 years in 2031. In 2007, the next phase of reforms began, the retirement age for men and women continued to increase gradually, to reach 67 years in 2029. In the 2022 crisis year, steps began to be discussed to raise the mark to 70 years for both sexes.

The reasoning used to justify lower pension benefits and a higher retirement age was also traditional. It was based on the fact that increasing life expectancy and the decreasing number of working citizens made this necessary and inevitable. However, this approach does not take into account the key factor, which is productivity growth. Since 1950, labor productivity in Germany has increased four to five times. For example, in 1950 one worker could produce an average of 100 units of a good or service, but by 2023, that figure had risen to 400-500 units. By comparison, the ratio of working German citizens to retirees in 1950 was about 10 workers per retiree, but in 2023 it is 2.1 workers per retiree. This means that although the pension level has been reduced by 34% and the retirement age has been seriously increased, the output per German pensioner is almost unchanged. In such a situation, one could have avoided an increase in the retirement age and regular indexation of pensions according to productivity growth. But instead, since 2005, pensions in Germany have been taxed, made possible by the so-called reforms of the coalition of the Social Democrats and the Greens. Clearly, the German pension system urgently needs to be improved in order to provide a more dignified life for retirees. But in reality, the Germans will face the French scenario, and the government will take advantage of their faith in the infallibility of the state and their confidence in Germany’s infinite wealth. Obviously, any prosperity can sooner or later be squandered. Under such conditions, sooner or later the Germans will understand the protesting French well and stop perceiving them as spontaneous rebels or losers.