GERMANY - Inherent promises made in the Riester reform - maintaining the standard pension replacement at levels above 67% and preventing the contribution rate from exceeding 20% until 2020 and 22% until 2030 - are unlikely to be kept.
A new study entitled “The economic implications of ageing societies: The cost of living happily ever after,” said that the provision to adjust benefits automatically on the basis of the demographic balance between pensions and workers will “almost certainly” break the promise inherent in the Riester reforms, named after then-welfare minister Walter Riester (pictured).
“It is not clear, however, whether the population has a good grasp of how the automatic demographic adjustment process will affect their pensions,” said the book by Steven Nyce and Sylvester Schieber.
It added: “In Germany, the approach to pension reform has shaken the public’s confidence in their governments’ pension promises. It takes time to build assets, both for pension plans and for individuals, but time is of short supply.
“Some of the protesters are legitimately frightened of the future - people have based their plans for retirement on what is now a moving target. Older workers are running out of options, and younger workers are being saddled with debts they had nothing to do with creating. It is a formula for discontent.”
The report recommends urgent reform of the pay-as-you-go first pillar:
“It takes time to accumulate the assets it needs to deliver retirement benefits. The longer we delay adjusting pay-go systems, the steeper the cuts in benefits or increases in contributions likely to be required. The time to act is now.”
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers