With the upcoming election in Germany, Pete Carvill discusses what this means for pension policy in the country

It is election time here again in Germany. On 23 February, those of us with a vote in this nation (which does not include me) go to the polls in what will be a vote of confidence in the administration of current Chancellor, Olaf Scholz.

Spoiler alert: Scholz, probably, is toast. And Germany will have a new Chancellor (not head of state – that is the German president, although the role is largely ceremonial) within the coming weeks.

How we got there is tricky, and is a situation that I explained briefly some weeks ago on these pages.

All of it began back in November when Scholz fired Finance Minister, Christian Lindner, from his role when the coalition government could not agree on the country’s budget. Lindner, who was head of the Free Democratic Party (FDP), was joined in protest by the rest of his party, which removed all its members from the coalition.

Scholz then went for a vote of no-confidence in his government, which he lost (but also won because it triggered the election, which was his intention – it’s madness, I agree).

Back then, I wrote: “The issue that Scholz’s cabinet could not agree on, and which has caused the collapse, centres around the budget. More or less a year ago today, the Federal Constitutional Court declared the government’s budget policy to be unconstitutional. The plan under that policy had been to take money raised to manage the Covid-19 pandemic and use it for the climate action budget. The court’s ruling left a €60bn hole in the budget. Since then, no one has been able to agree within the government on the path forward.”

So who will take over from Scholz?

The current frontrunner in the election polls is Friedrich Merz, leader of the Christian Democratic Union, a more conservative political party. The CDU is not as far to the right as the AfD (no one else comes close), but Merz is currently polling at 31 per cent (as of 14 January, according to Politico). Scholz, meanwhile, is at 16 per cent with fellow coalition partner the Greens at 14%. The aforementioned AfD, now backed by Elon Musk, is at 21 per cent.

There will be many issues that an incoming Merz administration will have to deal with (to support this, the insurance giant Allianz this week outlined ten pillars the country needed to adopt in order to halt its economic stagnation – which is now two years and running).

One of the most pressing problems is Germany’s ageing demographics. By 2050, the old-age dependency ratio is set to have gone from 34 per cent to 51 per cent – that’s a 50 per cent increase. And there seems little urgency or fire to fix this.

Back to Merz and the CDU.

Given that pensions are a huge issue, and an increasingly pressing one, it must be instructive to look at what Merz has planned. Or, at least, what he is promising to plan.

Well, there are a few things on the docket.

Firstly, the CDU wants to introduce an ‘active pension’. It said: “We are making voluntary work beyond the statutory retirement age more attractive. Up to an income of €2,000 per month, no income tax is paid.”

The current limits are confusing, with different amounts ranging from 15 per cent upward charged on pensions, dependent on age. So, any cut here will reward older, retired generations with more spending money while guaranteeing that the amount of pensions will not decrease. That is a win for pensioners, although it does nothing for the generations after them that are struggling to save and often evince a fatalism about ever claiming a pension.

And there is more in a promise to reward early private provision. The aim is to introduce an early start pension for young people. “We will pay €10 per month for each child from the age of six into an individual, cost-effective, and privately organised custody account in order to make additional provisions for old age at an early stage.”

So the proposals are, in a nutshell, to encourage longer working through reduced taxes and to implement savings plans for those just entering school. There is nothing about tax rebates for supplementary pensions savings, or a sovereign wealth fund, or coalescing the various state-sponsored pension schemes, or strengthening and promoting second- and third-pillar pensions.

None of that seems pretty reassuring, and pretty much more of the same. Just tinkering around the edges. The message, as always, seems to be no more creative than: Work longer, save earlier.

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