German state pension on ‘verge of collapse’

The German state pension system will collapse unless the retirement age is raised in line with a rapidly rising life expectancy, the head of an influential trade body has warned.

Germany, which has one of the oldest populations in Europe, is expected to age rapidly over the next few decades. This means that its state pension system will be under strain from both weaker funding from a smaller workforce and higher demand for payouts from a growing number of retirees.

Under Germany’s current system, the state pension guarantees retirees at least 48pc of the average wage until 2025.

The current state pension age is 65, but is in the process of gradually rising to 67.

Rainer Dulger, president of the Confederation of German Employers’ Association, told the Bild am Sonntag newspaper that the system would break down within five years without intervention.

He said: “For every 100 contributors, there are currently about 50 pensioners; in 15 years, there will be 100 contributors for every 70 pensioners. This means that the financing of our pension system is on the verge of collapse. 

“The retirement age should be linked to the increase in life expectancy. It must not be the case that the further increase in life expectancy leads to an ever longer retirement.”

Mr Dulger added that the system would create a generational gap.

“The citizen's income threatens to divide our society. It can't be right that some people who go to work in the morning have only a little more money available than someone who doesn't go to work in the morning. That's unfair and sets the wrong incentives.”

In Britain, the Government’s “triple lock” on the state pension hangs in the balance. The policy, which was a Conservative manifesto promise, pledges to increase the benefit in line with the highest of the previous September’s inflation, wage growth of 2.5pc.

Pensioners were denied £13,000 over the course of their retirement after Rishi Sunak ditched the policy last year as Chancellor, following a freak jump in wages thanks to pandemic furloughs and redundancies.

While former Prime Minister Liz Truss promised to reinstate the policy, Mr Sunak has refused to comment on the policy until the “fiscal statement” on November 17.

The British Government has put plans in place to increase the state pension age, rising from 66 to 67 between 2026 and 2028, and then again to 68 between 2044 and 2046.

However, experts have warned that the state pension will need to increase to 69 by 2041 as the number of retirees begin to outgrow the working population.  

Reference: The Telegraph: Lauren Almeida