A rising life expectancy, the obsolescence of society and low birth rates - the current demographic change is a tremendous challenge for the German pension system. In its history, the German pension system has undergone several fundamental changes. Founded in 1899 as the first pension system worldwide, it continuously adapted to changing circumstances.
In 2018, the commission “Verlässlicher Generationenvertrag” is founded by the Great Coalition. Secretary of Labor, Hubertus Heil, chairs this commission. In cooperation with the Federation of Trade Unions, employers’ associations and the Max Planck Institute, the commission works out a plan to ensure the continuation of the current pension system and thus the continuance of the inter-generation compact.
This research paper focusses on how the decisions of the great coalition regarding the pension system suit the demographic change and its impact on the inter-generation compact. After a short resume of the development of the German pension system and a differentiation between capital-covered and shared-financed pension schemes, the pension plans of the great coalition are analysed and evaluated from the aspect of the demographic change and their financing, before the answer to the starting question is given in the conclusion.
At this point, it has to be mentioned, that this research paper is to be understood as a general overview of the subject of demographic change, political decisions and the inter-generation compact. It explicitly focusses on the regular retirement pension and only briefly touches other pension forms like the mothers’ pension or the limited incapacity benefit whilst still using the costs of these for calculations. Therefore, the consulting of specialized literature is advised. Besides this, a basic knowledge of the German pension system is required.
Table of Contents
2. Introduction
3. The German Pension system and the inter-generation compact in a nutshell
3.1. The development of the German Pension system
3.2. The inter-generation compact
3.3. Comparison between capital-covered and shared-financed systems
4. Pension plans of the Grand Coalition
5. The demographic change: development of the population in Germany and its consequences for the pension system
6. Financing of the pension plans
7. Conclusion and discussion
Objectives and Research Themes
This research paper examines how the 2018 pension plans of the Grand Coalition align with Germany's demographic shift and evaluates their long-term impact on the sustainability of the inter-generation compact.
- Historical development and functional principles of the German pension system.
- Mechanisms and socio-economic implications of the inter-generation compact.
- Analysis of the "double yield line" and the pension commission's role.
- Assessment of demographic trends (life expectancy and birth rates) on system stability.
- Fiscal challenges and the necessity of federal subsidies for pension funds.
Excerpt from the Book
3.1. The development of the German Pension system
The German pension system was founded in 1889 to alleviate the consequences of age-poverty and invalidity. While there was still an emperor ruling Germany, the Social Security was self-administrated, which means that workers, contributors, and companies were mutually responsible for its administration. Today, this is still the case.
In the very early beginning, there was no pension system as it is known today, but rather a pension insurance, which was the base for a capital covered system: employees and employers paid mutually a premium of in average 2% of the employee’s wage. If having paid the premium for thirty years in total, the employees would receive a pension on completion of their seventieth year for the rest of their life. Yet, the pension level of in average around 23% was enormously lower as it is today.
The hyperinflation which resulted from the First World War destroyed approximately 90% of the reserve funds of the pension insurance and thus, it had no more financial meanings to fulfil the demands of its insureds. This was the beginning of the partial reserve pay-as-you-go pension system and thus the first step towards a shared financing. By using the incoming payments from current contributors for the payment of the pensions, the pension scheme was capable to overcome its financial deficit.
Summary of Chapters
2. Introduction: Presents the demographic challenge facing the German pension system and outlines the research objective regarding the Grand Coalition's 2018 pension plans.
3. The German Pension system and the inter-generation compact in a nutshell: Provides a historical overview of the system, including the shift from capital-covered to shared-financed schemes.
4. Pension plans of the Grand Coalition: Analyzes the coalition's agreement on stabilizing pension levels and contributions until 2025 via a "double yield line".
5. The demographic change: development of the population in Germany and its consequences for the pension system: Discusses how declining birth rates and rising life expectancy threaten the fiscal balance of the pension scheme.
6. Financing of the pension plans: Examines the rising costs of pension subsidies within the federal budget and the mathematical challenges regarding the retirement age.
7. Conclusion and discussion: Summarizes the findings, suggesting that the current system is unsustainable and that political measures only delay an inevitable collapse.
Keywords
German Pension System, Inter-generation Compact, Grand Coalition, Demographic Change, Pay-as-you-go, Retirement Age, Pension Reform, Fiscal Sustainability, Social Security, Sustainability Factor, Life Expectancy, Birth Rates, Federal Subsidies.
Frequently Asked Questions
What is the primary focus of this research paper?
The paper evaluates the 2018 pension policies of the German Grand Coalition in the context of demographic change and their effect on the long-term viability of the inter-generation compact.
What are the central thematic areas covered?
Key topics include the evolution of the German pension system, the transition from capital-covered to shared-financing models, the impact of population aging, and the fiscal pressure on the federal budget.
What is the core research question?
The study asks whether the Grand Coalition's pension plans represent a future-compliant reorientation or if they contribute to the eventual termination of the inter-generation compact.
Which scientific methods are employed?
The paper utilizes historical analysis, evaluation of statistical demographic data (such as birth rates and life expectancy), and mathematical modeling to assess the necessary retirement age for a sustainable system.
What is discussed in the main body of the text?
It provides a historical resume of the German system, analyzes the 2018 coalition agreement, discusses demographic development, and calculates the potential impact of pension adjustments on future generations.
Which keywords best characterize this work?
The work is characterized by terms like German Pension System, Inter-generation Compact, Demographic Change, Pension Reform, and Fiscal Sustainability.
How does the "double yield line" affect pension stability?
The "double yield line" fixes the pension level at 48% and limits contribution rates under 20% until 2025, which the author argues is fiscally unfeasible without massive reliance on tax-funded subsidies.
Why does the author consider the current pension plans "not fundable"?
The author argues that these plans ignore the reality of a shrinking workforce and increasing number of retirees, prioritizing short-term election promises over long-term structural sustainability.
- Quote paper
- Marcus Schwesinger (Author), 2018, The pension plans of the grand coalition in 2018 referring to the demographic change, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/437395
