In Germany, Shifting the Cost of the Pension to the Worker

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In Germany, Shifting the Cost of the Pension to the Worker

By Floyd Norris, The New York Times

January 9, 2004

German business and government are in agreement over one thing: Both are worried about paying the pension bills for Germany's aging work force. The result may be bad news for workers, and more pressure on them to save for their own retirement.

Three major German companies disclosed plans this week to cut pension benefits for workers, with one, Commerzbank, doing so without first consulting its workers - a move that is highly unusual in Germany.

"The problem for companies is whether they can afford the pensions in the future," said Christoph Groffy, a spokesman for Gerling, a German insurance company that is recovering from problems in its reinsurance business. He said workers at Gerling agreed last month to a change that would reduce pension benefits for most of them. That will lead to some higher-paid workers seeing cuts of up to 50 percent in their company-paid pensions.

The Gerling move, and plans for a change by Schering, the pharmaceutical company, were disclosed Wednesday, a day after Commerzbank, the large German bank, announced plans to simply halt its pension plan in 2005. Workers hired after that date will receive no pension from the company. Workers now with the company will receive benefits already earned but will not accrue additional benefits.

Last month, the German government enacted its Agenda 2010 economic package that made modest changes in the state pension plan, which is similar in concept to the Social Security system in the United States. The government indicated that further money-saving measures would be considered. Officials made clear that they hoped German workers would take more responsibility for their own retirement, either directly or through company plans.

"They wanted to address the point that personal responsibility of the people must increase," said Robert Ungnad, a spokesman for Schering, which said it planned to offer a less-generous retirement plan for workers hired this year or after. "So they want to push personal pension schemes, and they would like to see more company schemes. But it does not always work out that way, as you can see from Commerzbank."

While most large German companies have not indicated any plans to change pension benefits, and both Commerzbank and Gerling have faced financial difficulties, the fact that any companies are moving in that direction could stiffen union resistance to efforts to cut the state pension plan.

That plan is financed on a pay-as-you-go basis from payroll taxes, and remains in effect. The economic package announced last month altered the benefit payment schedule slightly but did not make major changes. At Schering, Mr. Ungnad said details of the new pension plan would be set after discussions with workers.

But he said the new plan would change the way benefits were calculated; now they are based on how much a worker makes in the final five years before reaching the age of 60.

The new plan, he said, would base benefits on contributions made over a worker's career. That would end the risk to the company that an employee would get big raises late in a career and thereby qualify for more pension benefits.

He said that while the current pension plan was financed entirely by company contributions, no decision had been made whether the new one might have some worker contributions.

The current Schering plan will continue for the existing 8,000 employees in Germany.

At Gerling, the company adopted a less-generous pension plan in 1998, but exempted workers already employed. Currently, Mr. Groffy said, 2,500 of the company's 7,500 workers are subject to the 1998 plan and would not be affected by its current change, which will move the other workers into the 1998 plan.

"The other 5,000 will suffer a reduction in the pension, in many cases of up to 30 percent to 50 percent," he said. The new plan has a ceiling on benefits, so the largest impact will be on the more highly paid workers.
He said that workers now over 60 would not be affected, and that the effect would be small on those nearing that age. "Those in their 40's and early 50's will suffer the most," he said.

The Commerzbank move means that employees will no longer accumulate any pension benefits other than those under the government plan, and it aroused anger among worker representatives, who said they had not been consulted.

"We doubt that the board's decision is legal, and experts are investigating before discussion at an extraordinary meeting of the workers' council on Jan. 22," said Uwe Foullong of the Verdi Union, according to Reuters.
Commerzbank shares rose on Tuesday, but then gave back those gains on Wednesday; the shares closed Thursday at 15.92 euros ($20.13) a share, off 0.4 percent for the week to date.