The German Economic Institute (GEI) has said the country’s statutory pension scheme will provide less pension provision despite increasingly higher contributions as the population ages.

In a report, the institute said an increase in the retirement age could slow the process but that this would be unpopular with a population wanting a constant level of pension benefits and unchanged retirement age.

GEI head of the state, taxes, and social security research unit, Dr Jochen Pimpertz, along with GEI economist for the social security systems, income, and wealth distribution, Dr Ruth Maria Schueler wrote an accompanying note to the report.

The pair wrote: “As the population ages, reforms aimed at stabilising the contribution rate appear politically unattractive. However, this only holds if today’s younger voters begin to favour generous pension payments as they grow older (what is known as the age effect). If, on the other hand, they retain their divergent preferences (the cohort effect), it will become more attractive for political parties to offer sustainable pension reforms in the interests of contributors.”

The report, Politische Ökonomie der Rentenreform, makes clear that while life expectancy in Germany has risen by five years since 2000, the average age at which a citizen takes retirement has risen by only half that in the same period.

It is against this backdrop, the GEI says, that up to 11.5 per cent of GDP will be allocated to the statutory pension scheme by 2060, up from 9.6 per cent. As the baby boomers retire, say the authors, the pension burden will fall onto fewer shoulders as birthrates have remained low for the past five decades.

Pimpertz and Schueler added: “As long as it is unclear which effect prevails, it would be helpful for voters if policymakers were challenged to reveal the basis of their decision-making. This would force them to make clear whose distributional interests they are prioritising. How the parties respond would offer voters more guidance in the polling booth than contradictory election promises or a dispute between experts over the fiscal consequences of pension policy.”

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