September 10, 2012
CDU Labour Minister von der Leyen has warned of increasing old-age poverty to justify her project to boost pension benefits for low-wage earners with longer working lives. According to the minister, more than one-third of the present workforce could be dependent on social welfare after retirement by 2030.
Today only 0.41 m, i.e. less than 2.5% of the 16 m people aged 65+ are on welfare. However, due to reductions in public pension benefits – the replacement rate will have declined by 16% by 2030 – and less stable working careers old-age poverty will increase substantially. The minister has taken reasonable and timely action by addressing the problem, although her figures disregard private pensions as well as the raising of the pension age. Nevertheless, parts of the government camp, namely the FDP and younger CDU MPs, have rightly rejected her plan, which would result in additional public pension spending of about EUR 0.3 bn initially and in excess of EUR 3 bn in 2030. Thus the alarming figures have put the government on the spot, but it has not offered a solution. The opposition SPD favours even greater inter-generational redistribution to support pensioners than the minister. The excited political debate on old age poverty often ignores that the cuts in the pension benefits as well as the labour market reforms in the past decade and the subsequent expansion of the low-wage sector have been sensible political answers to major challenges from population aging and globalisation. The establishment of sufficiently high minimum wages would entail the risk of higher unemployment among the unskilled and thus hardly reduce future old-age poverty. A right approach to deal with the repercussions of a low-wage labour market is, therefore, redistribution through the general tax system as well as measures to ensure the upward mobility of workers from that segment. A decision on such transfers could still be made in 10 or 15 years. But a long-term supply-side oriented policy is hardly going to be well-received in an election campaign.
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