German pensions 'face a shortfall of
By Timo Pache in Berlin, Financial Times
October 8, 2003
Public pension funds
in Germany face a financial deficit of up to €9bn ($10.6bn, £6.4bn) for
2003 and pension payments would have to be cut by about 1 per cent in 2004
to make up the shortfall, according to the industry body that represents
The warning, given
by the Federation of German Pension Insurance Institutes in a memorandum
to parliament obtained by FT Deutschland, comes as a number of big lobby
groups announced their opposition even to a potential pension freeze next
Negative growth in
pensions would be unprecedented in Germany.
A pensioners' lobby
group is considering suing the German government if payment cuts
An alternative way
of dealing with the projected shortfall might be to increase employee and
employer pension contributions from 19.5 to 20.4 per cent of gross income.
Under the German
pension system, which was established in the 19th century by Otto von
Bismarck, the working population finances current pensions and money paid
into the funds is immediately spent.
Public pension funds
are legally required to retain a reserve of only 50 per cent of pension
payments in any one month.
Schmidt, health and social security minister, promised recently that
pension contributions would not rise.
The estimated €9bn
deficit could rise, as it is based on income estimates in June.
warned: "If pension contributions continue to fall at the same rate
as in the previous two months, contribution rates will have to rise even
contributions have recently decreased because of high unemployment and
falling net salaries.
Ms Schmidt is
currently examining a range of rescue measures aimed at preventing a rise
postponing the next scheduled rise in payments to pensioners, lowering the
legally required pension funds reserve and paying pensions at the end
rather than at the beginning of the month.
The situation could
be made worse by finance minister Hans Eichel's plan to cut the yearly
subsidy to the pension system by €2bn.
In total the pension
system is subsidised by almost €80bn out of the state budget.
Yesterday a leading
pensioners' lobby group warned the government of the political cost of
cutting or failing to increase pensions.
would never forgive the politicians," the chairman said, adding that
elderly people, in particular those on low pensions, would be unable to
cope with a postponement in scheduled pension increases.