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Germany Passes Law Setting Up System of Private Pensions

By: Unknown
Die Welt, May 11, 2001

F.A.Z. BERLIN. In a two-stage vote on Friday, German lawmakers approved a historic revision of the country's pension system that will allow taxpayers to make their own decisions about where some of their retirement funds are invested.

Once the victory was assured, Chancellor Gerhard Schröder called the proposal truly "a major work of reform," which he compared to a second pillar that will help keep the roof over the pension system. The Social Democrat also lavished praise on Walter Riester, the labor minister who had to satisfy Mr. Schröder, accommodate labor unions' demands, and overcome persistent political resistance from the opposition in order to push through the reform.

Once the work that began in the autumn of 1998 was finally finished, Mr. Riester stressed that the government and taxpayers would have to wait 10 years before they could actually determine whether the private pension concept would help bear the increasing financial burden on the system.

The legislation that lawmakers considered on Friday was a compromise worked out this week by members of a conference committee. The German parliament, or Bundestag, voted first, and the coalition of Social Democrats and Alliance 90_The Greens was able to use its majority to easily win the necessary victory there. The final vote was 295-252, with four abstentions.

The next vote came in the Bundesrat, the legislative body that represents the states and is not controlled by Mr. Schröder's coalition. But the Bundesrat approved the plan, a victory made possible in part because the grand coalitions of Social Democrats and Christian Democrats in the state of Brandenburg and the city-state of Berlin endorsed the changes.

Both stand to gain from the reform because of the jobs created by the agency that will oversee the private pension system.

During the debate in both legislative bodies, Mr. Riester presented the same argument: "We are carrying out a quantum leap in the social security system."

The reason Germany needs to take this leap is a demographic development that is breaking something that German officials call "the contract between generations," a pay-as-you-go system under which younger workers support their older, retired counterparts.

This second generation is to be supported by the generation that follows, but the system is being eroded as increasing numbers of beneficiaries draw benefits for longer periods than before, while the pool of younger people paying for the benefits through their pension payments continues to shrink.

And according to estimates, the situation is set to worsen.