DIW pension expert Johannes Geyer is not considering raising the retirement age or overtime to support the system. Other areas, such as immigration and small jobs, offer significantly greater potential
Capital: Mr. Geyer, President of Metals Stefan Wolf, recently called for the retirement age to be gradually raised to 70 years. And not only this: we all have to do more. Is he right?
Johannes Gere: First of all, Mr. Wolf is right that the pension is funded mainly from wages, i.e. from labour. In this regard, raising the retirement age can play a small role, but it is not the final solution. The question is what overtime understands: I agree with him if he means current potential. For example, we have great opportunities with unemployed people – those who work very few hours. The question then becomes whether it makes sense to promote small jobs. But I think Mr. Wolf means increasing the weekly working time from 40 to 42 hours. This does not make sense, because the burdens for each additional hour of work are increasing more and more. This is why it is unrealistic in many industries, because employees are already fully overburdened.
Many people are familiar with their current structures. For example, because they want to raise the children themselves, or because they want to reduce the workload. For example, others also get sick. How big is this potential really?
This is absolutely true and very important. The debate often features big headlines like, “This is the ultimate solution to the pension problem.” But if you look closely, problems appear very quickly.
What problems are you thinking of?
For example, we’ve come a long way in childcare over the past 20 years, but we still have a high percentage of part-time parents. This is also perfectly fine if parents want to raise their children. However, the question is whether parents cannot be given more working hours with better care. Such discussions can be transferred to many areas. In general, the potential will be enormous. For example, the reserve of women working part-time is much larger than the reserve for working 42 hours per week.
Mr. Wolf does not agree and says the reserves are exhausted…
I don’t believe in that. If we look at the small jobs and the unemployed, there are huge reserves. In addition, about 170,000 people retire early each year due to illness. I think, for example, about poor working conditions and psychological stress. With better care, you can still do something here. There are also problems: those who have received a disability pension due to illness do not usually return to the normal labor market. We have extra potential here, even if you subtract diseases that are hard to prevent, like cancer. And last but not least, there is the issue of immigration. Sometimes I miss that in public debate.
We need to migrate, there is no getting around it. The more successful this is, the less strain on the pension system will be.
Many immigrants are stuck in cycles of tolerance or cannot access the labor market for other reasons. What do you think need to change?
These are two different things. One: How do we deal with people who are tolerant and entitled to asylum? The first steps have now been taken to make access easier, and that’s a good thing. The other is labor market migration. Within the European Union, Germany benefits greatly from being a net importer of skilled workers from Southeast Europe. This was very important for the good development of the labor market in recent years. At the same time, Germany is looking for skilled workers all over the world. It is about recognition of qualifications or German language lessons in these countries. Depending on the country of immigration, the obstacles are still quite complex.
Is this enough? If people worked until the age of 70, that would also be a possibility…
You have to do the arithmetic: the retirement age will be adjusted gradually – for example, by correlating the retirement age with life expectancy. For example, the current increase to 67 will not apply until 2031. If we increase the retirement age to 70 at this rate, we will be in the second half of the century. We may need the tool at some point because of course it will have a mitigating effect. But it does not help us in the short term.
But there are other ideas, for example that civil servants and the self-employed should pay into the pension system. What’s your opinion?
This is basically a reasonable suggestion, especially for self-employed people who are not compulsorily insured. On the one hand, because parts of this group are increasingly at risk of poverty in old age, on the other hand I think a standardized pension system would simplify things. First, increase contributions, which will help in the short term. In the long run, the effect wears off, but for a while we can reduce the increase in the contribution rate. Whether it is worth it is a political decision. In any case, the path will not be easy.
Where do you see the obstacles?
The unified system means that we will abolish the previous system. Those responsible have to be rebuilt in one way or another. That would be expensive. The system will have to be rebuilt piece by piece, and less formal – for example with teachers. In this way, the whole system will be changed in the long run.
The new working time models actually provide fewer hours per week. Is this evolution sustainable for the pension system at all?
It’s hard to say, however, we don’t have our own accounts for this. The pension is funded from wages, so this can be conceivable. Whether it is sufficient to fund good pensions is another question. Here it would be something like this, for example: reducing working hours can increase productivity and free up space for care. This, in turn, can have positive effects on care. On the other hand, there are potential losses. You have to balance that with each other, and that’s definitely not a trivial question. It cannot be excluded that this will work – but it is also not an easy question to answer. In any case, the state can also help by directing more of its money into the pension system.
This would be the fourth option…
Yes, and if you look at other countries, some do as well. Germany puts about ten percent of its GDP into the pension system. The figure in Austria is 14 percent, and Austria has had neither. So it is a question of political will.
The current system is mainly based on two stop lines: the contribution rate of 18.6 percent that employees have to pay, and the pension level of 48 percent. Then there is the retirement age. What adjusting screws are most likely to be rotated?
I think it’s realistic to do something about all three. However, I think the level of pensions will not go down much at the moment. The fantasy that we could supplement this with a funded pillar…
… that people save something for their old age themselves …
…this fantasy did not come true. We have a part of the population that is not spared, but also needs protection. We have a portion that saves, but it’s not enough. So, let’s put it succinctly: I think it’s unlikely that we’ll be able to bring our pension levels down to 43 percent, as we thought. It’s going to be exciting from 2025, as we’ll be discussing an increase in the contribution rate. It will come.
The retirement committee has already suggested a path of up to 24 percent. This would severely harm the workers. Do you think this is realistic?
Yes, such contributions can be envisaged in the long term. But the question is how to dampen this path. This is where the mentioned possibilities, such as potential, migration, etc. come into play again. Something like that would partially offset.
If they had a blank sheet of paper and they had to draw a pension plan. How should that look?
The pension system has recently come to a halt without a clear political goal. If there is such a goal, for example what employees can expect from their pensions here, then the role of the different pillars can be identified: private, corporate and statutory. This interaction needs to be reviewed. We must be clear about the role of legislative provisions in the old-age saving mix. And once you find a position here, we must ask ourselves the questions: How do you make it happen? How much does that cost? Does immigration work? With a private substrate, you have to make sure that everyone can participate. Otherwise it does not do much, on the contrary, it leads to more inequality.