“After years of pension increases, the usual increase in pensions in the west of Germany could be over in the coming year. In the east, there is expected to be only a mini-increase of 0.7 percent. This is the assessment of Alexander Gunkel, Chairman of the Board of Management of Deutsche Rentenversicherung.
As things stand, pensions in the West are not expected to rise next year, he told the Federal Assembly of Pension Insurance on Thursday. According to his assessment, contributors will also have to expect higher contributions after 2021.
The last time a pension increase occurred was in 2010, the year after the financial crisis. Since then, pensions have risen every year, sometimes sharply. From July this year, the approximately 21 million pensioners will also receive more: 4.2 percent in the East and 3.45 percent in the West. The basis for the annual adjustment is, among other things, wage developments in the previous year.
The assumptions were now based on falling average wages and a lower number of contributors, Gunkel said, referring to the Corona crisis. He also pointed out that pension cuts are legally excluded by a safeguard clause.
The pension insurance system explains the likely slight increase in the East compared to the possible zero round in the West with the so-called alignment staircase: by 2024, the pension value in the east will be gradually adjusted to that in the west until it reaches 100 percent.
However, a final decision on the pension adjustment on 1 July 2021 will not be taken until next year. The annual adjustment is usually determined by the Federal Government by decree in the spring. The Federal Council must give its consent.
Corona crisis hits pensioners
However, the Corona crisis is likely to be felt not only by pensioners, but also by the pensioners, according to the pension scheme. According to their forecast, the contribution rate will remain constant at 18.6 percent in 2021, Gunkel said. However, the level will not be maintained until 2024, as assumed before the Corona crisis. The contribution rate could rise before 2024 and probably reach 20 percent by 2025.
At 20 percent, a so-called holding line has been drawn in by law, and the rate must not rise until 2025. For the period thereafter, a commission of employers’ and trade union representatives, scientists and policy makers presented proposals for reform. Social Affairs Minister Hubertus Heil (SPD) then announced that he would tackle a long-term pension reform later this year.
“The economic impact of the Corona crisis is currently very difficult to assess,” Gunkel said. According to him, the sharp increase in short-time working and also the increase in unemployment as a result of the pandemic have a limited effect on pension insurance, since contributions of at least 80 percent of the previous salary would also be paid in the case of short-time work and the Federal Employment Agency pays pension insurance contributions to recipients of unemployment benefit I. Gunkel expects a deficit in the pension fund of around 4.3 billion euros in 2020.