Sunday, September 16, 2012


Ein Gespenst geht um in Deutschland, das Gespenst der Altersarmut (A specter is haunting Germany, the specter of old-age poverty). Marx may not pardon me but I could not find a better introduction to another chapter of German angst. Altersarmut, admire the efficiency of the German language expressing all that misery just in one word what in English is translated possibly best into poverty among the elderly. I am sure Altersarmut will be elected Germany's Unwort 2012, the ugliest word of the year.

Germany's age pyramid in 1911
It is obvious and had been known for a long time that in the future fewer young earners have to support more old-age pensioners. Just look at Germany's age pyramid. What in 1911 looked like the top of a fur tree now resembles a mushroom.

Germany's age pyramid in 2011
It was Bismarck who had pushed for a social security system in Germany in the late 1880ies not because he pitied the misery of the working class but he tried to cut the ground from under the socialists' feet. Germany's old-age pension is based on the so called generation treaty i.e. the young are paying into the system financing the pensions for the retired. This works fine in case the age structure shows a natural evolution but who envisaged that people now live longer than in the past (increasing the cost for medicare by the way) and that young couples have less children than our grandparents. I still remember discussions in Germany during my young years about how to finance future social security benefits in view of the people lost during the last war not contributing to the system. When looking at today's age pyramid you will still notice a dent for the period in question but that is nothing compared with the  distorted present day age structure.

To better balance the social security system our government had introduced two palliative measures a few years ago: lowering the level of pensions from 50% of the average income to 43% until the year 2030 and increasing the age of retirement from 65 to 67 years during the same period. My organization had forced me like everybody else in the house to retire at the age of 65. I still remember my American friends shaking their heads when learning that. One of them even said that he cannot afford retirement for his institute had invested their pension fund in stocks that had lost money and so his pension had.

In Germany in the past years people were urged to put part of their earned money into a private old-age insurance. Like in Switzerland nowadays our system is based on three pillars (as they call it) legally bound, occupational, and private insurance. However, with the presently low interest rates people see their financial efforts made to assure them decent pensions melting down with low interest rates and inflation. On the other hand many persons had low earnings at times or were even unemployed during their working life. They will face mini pensions or even Altersarmut.

A few weeks ago our Christian Democrat federal minister for social affairs forwarded an old idea in breaking the rule that in Germany pensions mirror your financial contributions. She proposed toping up all mini pensions to a level that people can survive on taking money from the social security system. It is true that presently the system has a surplus but what will happen (and it happened in he past) if the social security fund gets into the red? Taxpayer's money will then fill the deficit meaning that again the working young people will support the old. The head of the opposition Social Democratic Party said: Let us not take the hidden detour proposed by the minister but use taxpayer's money right away to guarantee everybody a survival pension. Since the difference between the government and the opposition was only marginal an agreement could have been found but the trade unions did not agree. They requested to increase the level of pensions to the original 50% of the average income in combination with the age of retirement lowered again to 65.  In returning to square minus one! they did not specify how to finance their proposal.

You can turn it around as long as you wish: the battle of generations for the share of wealth will become harder. Our grandchildren will have to work longer to meet both ends, some until they kick the bucket. Already now more people following their retirement continue to work or take up new occupations in Germany than our government is willing to admit. Why don't they just tell us the truth? Again, it is the usual Volksverdummung (brainwashing) of the voters.

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