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PENSIONS

Old-age poverty in Germany ‘set to rise significantly’

More than every fifth pensioner in Germany will face financial insecurity in the next 20 years, according to a new study.

Old-age poverty in Germany ‘set to rise significantly’
Pensioner poverty is expected to rise significantly in Germany. Photo: DPA

The proportion of pensioners at risk of poverty could rise from 16.8 to 21.6 percent by 2039, according to research published on Thursday by the German Institute for Economic Research (DIW Berlin) on behalf of the Bertelsmann Stiftung. 

That’s the case even if the economy remains in good shape, researchers say. Groups particularly affected are low-skilled workers, single people – especially women – and people who’ve experienced long periods of unemployment. 

Christof Schiller, head of the study, said: “Even if the labour market develops positively, we must expect a significant increase in poverty among the elderly in the next 20 years.”

Schiller called for reform of the pensions system.

Someone in Germany is generally deemed to be living in poverty if they live in a household with an income below 60 per cent of the current median (or typical) household income, although other factors are taken into account. According to the study, these are people whose monthly net income is less than €905.

READ ALSO: Pensioners working more to avoid 'old-age poverty'

The proportion of pensioners who are dependent on the state to secure their livelihood could rise from the current nine percent to just under 12 percent by 2039. 

The DIW study found eastern German pensioners will have to cope with a particularly severe increase. The number of pensioners dependent on the state in eastern regions is currently a fairly low 6.5 percent –  probably as a result of higher female employment during the GDR era. But it could almost double to just under 12 percent by 2039.

What are the reasons for old-age poverty?

Precarious employment, part-time work, fixed-term contracts and breaks in working life for mothers can lead to financial struggles later in life. 

The pension system is also under pressure as the population gets older. The current research uses data from 2018 that shows there are 31 people aged 67 and over in every 100 people of working age – and this could rise to 47 after the baby boomers enter retirement in 2038.

The study lays bare the problems that lie ahead. Social security and how to deal with an ageing population are high on the agenda of Germany’s ruling coalition, made up of the centre-right Christian Democrats (CDU/CSU) and the centre-left Social Democrats (SPD).

Earlier this year, Labour Minister Hubertus Heil, of the SPD, presented his plan on introducing a basic pension (Grundrente) in Germany. It would see people who have clocked up 35 years of work, raised children or cared for relatives receive a supplement to their pension. It is intended to help those who receive a small pension.

READ ALSO: From climate action to 'Soli tax': What you need to know about Germany's planned changes

But the Union is opposed to the basic pension being paid if the person concerned is not in need – for example, if that person has a partner with a good income who can support them. However, Heil insists on the model without means testing to avoid bureaucracy.

According to the study authors, the coalition plans, even without means testing, would not be “sufficiently targeted” to help those in need.

Photo: DPA

If implemented, the plans would limit the poverty risk rate to 18.4 percent by 2039, but many people would still fall through the net.

Schiller suggested adding a simple income test to Heil’s plans, which would ensure that only low-income households are taken into account, but would keep the administrative burden low.

He also said there should be more flexibility, which could help pensioners whose working lives have been interrupted by longer breaks in employment.

READ ALSO: How Germany plans to fight its drastic shortage of care workers

The report is primarily based on data from a representative survey of the German resident population (SOEP) conducted annually since 1984.

Financial problems in old-age are a worry for the majority of Germans.

A study by the Ernst & Young consulting company published at the start of 2019, found more than half of all Germans have a fear of living in poverty later in life.

A total of 56 percent of respondents said they were very or slightly scared of financial insecurity in old age, an 18 percent jump from 2017.

Vocabulary

Old-age poverty – (die) Altersarmut

Pensioners – (die) Rentner 

Labour market development – (die) Arbeitsmarktentwicklung

Precarious employment – prekäre Beschäftigung 

Unemployment (die) Arbeitslosigkeit

We're aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Do you have any suggestions? Let us know.

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ECONOMY

Pension reform, investment, new jobs – Macron unveils France’s post-Covid recovery plan

French President Emmanuel Macron has announced a series of economic measures, looking beyond the pandemic, although the much-anticipated pensions reform will be delayed until Covid is "under control".

Pension reform, investment, new jobs - Macron unveils France's post-Covid recovery plan
A nurse watches Macron's TV address on Monday. Photo: JEAN-FRANCOIS MONIER / AFP.

Obligatory vaccines and the extension of the health pass made the headlines following Macron’s live TV address on Monday evening, but the President also sketched out his vision for France’s post-Covid economy.

Some of the measures he announced represent a return to the priorities he set at the beginning of his tenure, while others have been shaped by the pandemic.

Pension reform

There had been much speculation about a return of controversial plans to reform France’s retirement system, which were shelved at the start of the pandemic.

Macron confirmed that he planned to raise the retirement age – most people can currently retire at 62, but a number of ministers have been pushing to raise the legal minimum to 64.

READ ALSO France to tackle fourth Covid wave with stricter border controls, health passports and compulsory vaccines

“Because we are living longer, we will have to work longer, and retire later,” Macron said. “Not tomorrow, not brutally, and not in a uniform way because we will take the difficulty of a job into consideration.”

The government will begin consultations with workers and employers in September, but “will not undertake the reform so long as the epidemic is not under control and the recovery guaranteed,” Macron said.

This could mean his plans are not implemented before the presidential election in April 2022.

Macron also returned to a controversial point from the 2019 reform plan which lead to widespread protests: the abolition of the country’s 42 different pension regimes, which currently mean many public-sector workers can retire early. Under the new plans, these special regimes will be abolished for new employees, but people currently employed can keep the generous exceptions.

EXPLAINED: What are France’s special pension regimes?

The plan also includes a minimum pension of €1,000 per month after a full career. “A life of work must offer a dignified pension,” Macron said.

Unemployment reform

Changes to unemployment benefits will be “fully implemented” on October 1st. The reform was supposed to come into effect on July 1st, but in June, France’s Council of State decided to suspend certain elements regarding the way benefits are calculated.

“Uncertainties around the economic situation do not allow for implementing, at this moment, these new rules which are meant to support job stability by making benefits less attractive for workers alternating between short contracts and inactivity,” that decision stated.

“In France, you must earn a better living by working than by staying at home, which is currently not always the case,” Macron said on Tuesday.

From September, the government will also launch “a massive plan for the training and retraining of the long-term unemployed”.

“We have seen during this crisis the strength of our social model,” Macron said. “It’s a jewel we need to preserve. This social model rests on one foundation: work.”

Investment plan

During his address, Macron also emphasised the importance of economic sovereignty, and said an investment plan would be unveiled in the autumn following consultations this summer. The objective is “to build the France of 2030”, and to “reindustrialise, reconcile growth with ecological production”.

“We saw during this crisis the consequences of dependence,” Macron said, calling for French and European independence with regards to technology and primary resources.

Last month, the President announced a series of measures designed to stimulate French innovation in healthcare technology.

Support for young and old

Finally, Macron announced additional support for those who have been hardest hit by the pandemic – young people “who sacrificed so much even though there was little risk for themselves”, and elderly people “who more than others feared for their lives”.

In September, the government will unveil a new revenu d’engagement (commitment-based income) for young people not in education, employment or training. This “will be founded on rights and responsibilities”. This could resemble the garantie jeunes, a monthly benefit for 16 to 25-year-olds not in employment or training, created under François Hollande’s government.

For the older generation, Macron avoided specifics. “We owe them a great humanist ambition for independence, strengthened home care, modernised retirement homes,” he said.

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