This is especially true of people on low incomes: inflation is widening the pension gap of millions – Economy

Pension Minister Hubertus Heil (SPD) strongly believes in statutory pension systems. “The statutory pensions are strong and stable,” Heil said last Friday on the latest pension hike. As of July 1, 21 million retirees have received 5.35% of the total. more pensions if they live in the west, while those in the east have received a 6.12% increase in their pensions. It is not enough to compensate for the current 7.6% increase in prices. But this is the strongest increase in almost 40 years, emphasizes the German pension insurance scheme.

However, for those under the age of retirement age, the future is not so bright. The level of pensions, which expresses the security of pensions relative to wages, will decline slightly in the coming year, warns Alexander Gunkel, chairman of the federal board of the German Pension Insurance Association. In 2023, the pension level will be just over 48%. In 2024 and 2025, only a statutory minimum is likely to prevent the pension level from falling below 48%. The pension level describes the ratio of a standard pensioner’s pension after 45 years of contributing to the average employee’s income.

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Many are already saving too little

However, up to 48 percent. it is not enough to maintain the standard of living to which we are used to in working life. This would require a pension level of 55 percent, according to a new study by the consulting firm Prognos for the German Insurance Company (GDV) that Tagesspiegel has at its disposal. The problem: to achieve this, about 6.6% of net income would have to be set aside for retirement provision, but many fail. “Four out of ten working-age households have too little financial freedom, even if they spend all their free monthly money on old age benefits,” said Prognos leader Oliver Ehrentraut. Almost eleven million households are unable to close the pension gap on their own.

[Frisst die Inflation die Rentenerhöhung wieder auf? Lesen Sie dazu: Wie groß ist die Rentenlücke? (T+)]

Inflation is hitting low-income households particularly hard

High inflation exacerbates the problem. “On the one hand, inflation increases the need for reserves for the future, but at the same time narrows the scope for savings today,” said Tagesspiegel, GDV CEO Jörg Asmussen. Rising prices are hitting lower-income groups the hardest. While consumer spending for all households increased by an average of 5.7%. from April 2021, by 7.8% in the quarter with the lowest income.

“Inflation is exacerbating the safeguarding situation of the elderly for a large part of the population,” warns Ehrentraut. Unlike more affluent people, low-income people find it hard to absorb inflation because they don’t incur any unnecessary expenses. “The extra expenses come at the expense of the savings potential and thus retirement benefits,” criticizes Ehrentraut. It sees politics as an obligation to take remedial action in socio-political terms.

Insurance association calls for reform of Riester

The insurance association sees the solution in improving the Riester subsidy. “You need to increase powers,” says Asmussen. In addition, the state must relax the requirement to withhold 100% of the contributions paid by the insured person. This regulation prevents a more promising and more profitable capital investment. In addition, simpler legal requirements would also reduce the cost of Riester products.
According to the Prognos study, the subsidy is generally appropriate to provide targeted support to low-income households. It must be said, however, that the Riester pension is not yet sufficiently adapted to these target groups, despite funding. According to Prognos, there is an “urgent need for action” for the provision of supplementary services to be funded nationwide.

what the government is planning

Regardless of inflation, Riester’s pension is in a difficult position. More and more insurers no longer offer new products. The reform pursued by the financial sector has not been successful in the past legislature. Instead of a Riester pension, consumer ombudsmen are calling for the creation of a new, capital-backed pension fund for German citizens. In the coalition agreement, it was agreed to introduce a participatory pension, which is to supplement the statutory pension insurance. Initially, the state is to finance the development, then part of the pension contributions is to flow to the funded system. Pension Minister Heil is working on this. For a stable retirement “which everyone can rely on, this year I will choose the course again,” said an SPD politician last Friday.

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