Extremely expensive system – Without reforms, pension expenditure will increase enormously

The coalition negotiators are currently seeking five billion euros to get the budget deficit under control by 2025. The great need for savings is also due to the expensive pension system. Next year alone, the federal government will have to spend 2.4 billion euros more. “That would be half of the renovation package,” says Url.

The state has to pump more and more into the system
“Federal funding will increase by almost 60 percent in the coming years, contributions by 30 percent,” emphasizes former head of the Old Age Security Commission and ex-section head Walter Pöltner. According to the Ministry of Social Affairs, almost seven billion euros more will have to be spent on pensions from the budget in the next five years alone, of which five billion on statutory pension insurance and approximately 1.8 billion on civil servant pensions.

“Anyone who says that it has all been thought through or that it is not a problem is blind or cannot do math,” says entrepreneur Georg Feith, initiator of the “Generations Justice Campaign”. Pöltner does not deny that pensions are safe, the only question is: at what price?

It is clear that on average fewer and fewer people with a job have to support a pensioner. In 1980 there were 4.5 working people for every retiree, the year before there were 3 and in 2050 there will be only 1.7. As a result, the state will have to pump more and more into the system, which limits the room for other expenditure. Contributions are still not sufficient and the federal government must close this gap, which consumes more tax resources every year.

A quarter of the budget for pensioners
Pensions are already the largest expenditure item with 30 billion euros per year, a quarter of the federal budget and two-thirds of social expenditure are included in this, not to mention the interest on the increasing debts. Less is spent on education (approximately 20 billion euros).

A look across the borders shows that in the EU, in terms of economic output, only Greece, Italy and France have a more expensive system (see graph). Without countermeasures, little will change in this position in the rankings. “Above all, the low actual retirement age and high replacement rates are important levers to reduce the need for subsidies,” says Pöltl.

Url also emphasizes that raising the starting age is very urgent. “This can be automatically linked to life expectancy.” This has already been implemented in a quarter of OECD countries. The pension corridor will also be increased by one year from 63 to 69 years. In addition, Wifo advises against ‘over-adjustments’ and advocates higher deductions for early retirement, as in Spain.

In return, working longer beyond the legal age should also be rewarded with a better pension after retirement. Incentives to keep retirees working longer (less social security and taxes) also have an impact, as the Czech Republic, for example, proves. Older employees also have great value for the labor market, Wifo also emphasizes.

The experts also believe that pension splitting makes sense to compensate for lower salaries as a woman. The care times are divided mathematically between the partners. With an opt-out option, freedom of choice can still be maintained if someone does not want to make use of it. It also makes sense to strengthen the second pillar, company pension schemes. The assessment restrictions here should be relaxed and capital gains tax for longer assessments should be abolished.

The capital market can supplement the pension system
And the financial market could also relieve the budget, as Sweden shows: in addition to the levy, there is also a capital market component (“stock pension”) that keeps the system financeable for the state. Swedish workers must pay 2.5 percent of their gross income to pension funds. A choice can be made between the state AP7 fund and other fund solutions.