Another major conflict at the traffic lights. Once again the FDP is the opposition in the government. Although the pension package has long since passed the cabinet table, the FDP parliamentary group is resisting. The leader of the resistance is Johannes Vogel, parliamentary manager of the FDP parliamentary group and deputy federal chairman of the party. So one of the most powerful people in the FDP, not just any backbencher. And also the man who designed the stock pension for the FDP.
Spicy: Vogel even ignores his party leader and incumbent finance minister, Christian Lindner, in his resistance. While Lindner considers the package to be “negotiated” and “capable of approval”, Vogel warned in the first reading in the Bundestag around four weeks ago: “This law is not yet ready. We all have to go at it again together, honestly and thoroughly.” Since then, there has been a hearing in the Bundestag, negotiations behind closed doors – and Vogel has avoided talking about it publicly. Meanwhile, the SPD is pushing. She actually wanted to pass the package in the last week of the meeting, but that didn’t work. Now it’s fall break. Lots of time to negotiate.
Pension package II: That’s what it’s all about!
With the Pension package II The pension level is to be stabilized at 48 percent by 2045. Without reform, the level would fall from 2028 and would only be 45.3 percent by 2035 and even fall below 45 percent from 2040. In plain language: pensioners would become poorer. Even three percentage points less pension level would reduce a standard pension by around 110 euros at today’s pension and price levels, he said German trade union federation calculated.
To finance the higher level, there are two key changes. First: a gradual increase in contribution rates from 18.6 to 22.3 percent by 2045. However, even without the reform, the contribution rate would have increased to 21.3 percent. The pension package does not increase contributions by 3.7 percent, but only by one percentage point.
And secondly: Generational capital (“stock pension”), in which the federal government will take on around 200 billion euros in debt by 2036 and invest in stocks and other forms of investment on the financial market. From 2036 onwards, ten billion euros should flow into pension insurance every year so that contribution increases are dampened. To put it into perspective: Without generational capital, the contribution rate in 2045 would be 0.4 percentage points higher, i.e. 22.7 instead of 22.3 percent.
The FDP wants to change that
What exactly FDP parliamentary group leader Vogel wants to change has not yet been revealed in the Bundestag. But you can guess. He wants to curb the higher pension contributions so that those paying in have more net left over from their gross income and thus reduce wage costs for employers. Ultimately, employees and employers each pay half of the pension contributions. So far, so known as a classic FDP position.
But the money then has to come from somewhere else. The obvious solution: increase generational capital. And that would even be possible despite the debt brake. This is because equity investments, like government investments, are considered a financial transaction, and financial transactions are not subject to the debt brake.
600 billion euros in new debt for stock pensions?
Instead of 12.4 billion, the traffic light could double or triple that amount next year. Correspondingly more could be paid out later and would reduce pension contributions. It would have to be tripled in order to keep the contributions on the original path at 21.3 percent until 2045. To do this, the traffic light would have to decide to incur around 600 billion euros in new debt for generational capital by 2036. In order to keep pension contributions at the current 18.6 percent, the generational capital would have to be ten times as large as previously planned. Two trillion euros of new debt would have to be created by 2036, not 200 billion.
But there are two catches. Although the debt itself for generational capital is not subject to the debt brake, interest costs are. With two percent interest costs and 600 billion euros, that means around twelve billion euros from 2036 that are missing from the budget for other things every year. In addition, the debts are not counted towards the debt brake, but are counted towards the debt ratio. With 600 billion euros of new debt, the debt ratio – i.e. debt in relation to economic power – would be around 13 percentage points higher in 2036, i.e. over 70 percent.
That in turn does not fit with the FDP line. Christian Lindner repeatedly states that his goal is to have a debt level of less than 60 percent. Vogel shares this too. So he is in a quandary with the parliamentary group: Because the FDP categorically rules out higher taxes as well as higher debts, there is hardly any scope for significant changes to the pension package. At least as long as a reduction in pension levels is taboo. But the SPD wouldn’t go along with that. And in an aging society with more pensioners than young people eligible to vote, it is also a politically daring step that the FDP cannot afford given the current poll numbers.
Therefore my prediction: Vogel has made a mistake, pension package 2 will come as the draft envisages. The traffic light will not fail because of this.
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