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Not only are pension expenses rising, but also the pensions of civil servants. Not all federal states are prepared for this.
Frankfurt – Not only the Interest is under pressure due to the ageing society. The financing of pensions for federal and state civil servants is also coming under pressure due to the increasing number of people in retirement and the decreasing number of people in employment. Not all federal states are prepared for the additional expenditure.
The financial support of retired civil servants differs from that of regular employees in that they do not receive any benefits from the statutory pension insurance scheme. Instead of a pension, they receive retirement benefits that come from the annual budget of the federal government and the states. Sustainable financing therefore also influences how much money the state will have in the future for other expenses such as social benefits and investments.
Not just pensions: Civil servants’ pensions also under financial pressure
A working paper by the economic experts from January expects the burden of pensions to increase over the next ten to 15 years. This is due on the one hand to the wave of recruitment in the eastern German states after 1990 and on the other hand to the increase in the number of civil servants since 2015.
The federal states in particular are suffering from rising pension expenditure, as they are responsible, among other things, for the pension expenditure of the “personnel-intensive area” of the police. (Symbolic photo) © Marijan Murat/dpa
According to simulations by the German Council of Economic Experts, as the body of economic experts is actually called, pension costs will rise from the current 1.7 percent of gross domestic product (GDP) to 1.9 percent in 2040. The federal states, which employ almost 70 percent of all civil servants, will be particularly hard hit. As a result, the federal government’s share will actually fall from the current 0.5 percent of economic output to 0.3 percent in 2050.
“The state budgets have to bear the largest share of the expenditure on services due to their personnel-intensive areas such as education and internal security,” said Alexandros Altis of the Federal Statistical Office of the Business Week.
Civil servant pensions are becoming an increasing burden for federal states
For the states and municipalities, the increase is, according to the Working paper The economic experts believe that this will increase even more. Instead of the current 1.2 percent, spending is to rise to around 1.9 percent of GDP. The additional burden on pensions would have to be covered “overwhelmingly from the employers’ current budget funds and thus largely from tax revenues.”
According to economic experts, the federal and state governments have set aside provisions or reserves totaling 77 billion euros for pensions. This would be enough to finance pensions for just over a year. Pension expenditure currently amounts to around 69 billion euros annually.
Significant differences in financial provision for increasing number of pensioners
However, pension provision is distributed very unevenly between the federal government, states and municipalities. According to the Federal Government’s economic advisory body, it is “by no means proportional to the respective pension costs”. In the working paper, the economic experts therefore recommend that the states take further measures to curb the foreseeable increase in costs.
So far, the provision of care in the federal states has been very different. The German Civil Service Federation (DBB) has also criticised this, according to Business WeekThe magazine compared the level of reserves at the end of 2023 and the projected and “possibly” permanent burden from 2035 onwards to assess the countries’ preparation for the pension burden.
Only five countries are therefore able to afford the forecast expenditure with their current resources:
- Baden-Wurttemberg
- Hesse
- North Rhine-Westphalia
- Saxony
- Saxony-Anhalt
Pensions of civil servants protected in different ways
Not only the amount of reserves, but also the method differs between the states. Saxony has protected the pensions of civil servants in a “generation fund” from access by politicians. Hamburg There is “double-entry bookkeeping”, which combines a provision of 38.9 billion euros with a reserve of about one billion euros.
In Bremen and Thuringia, politicians are using the reserves to relieve the budget. In Bremen, the reserves are to be completely used up by 2039, in Thuringia this is already the case. Schleswig-Holstein planned to use at least parts of it.
The federal government expects annual costs of 25.6 billion euros for the pensions of federal employees by 2050 and has set up three special funds totalling 31.7 billion euros, of which, according to Business Week 80 percent are invested in fixed-interest securities and 20 percent in equities.
Pensions have “serious financing problems”: Economist sees “little cause for concern” when it comes to pensions
The Halle Leibniz Institute for Economic Research (IWH) already examined in 2021 to what extent the federal and state provisions are sufficient to cover the future burden on pensions. The decisive factor here is the recruitment practices of the federal, state and local governments. Assuming that there are fewer civil servants as the population shrinks, the IWH predicted that the share of pension expenditure in GDP would remain constant.
“The long-term development of civil servant pensions gives the federal and state governments little cause for concern due to the fact that tax revenues are likely to rise more than pension expenditure,” explained study author Oliver Holtemöller. In contrast, municipalities will have to spend a “noticeably larger share of their tax revenues on civil servant pensions” in the coming years than before. He expects this to be six percent, instead of the current average of four percent.
Compared to pensions, Holtemöller nevertheless sees the financing of pensions as more secure. The “foreseeable financing problems […] significantly more serious”.
