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.”
This week's edition of Professional Pensions is out now
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