Work until age 69? German central bank reignites debate

Analysts back idea to maintain pension system, but politicians show opposition ahead of polls

BERLIN • The German central bank's call for people to work until age 69 has reignited a fierce debate in Europe's fast-ageing top economy, with analysts backing it while politicians show their opposition ahead of key elections.

Germany Economy Minister and Vice-Chancellor Sigmar Gabriel was swift to condemn it, saying: "A factory worker, a shop assistant, a nurse, a caregiver would find this idea nuts. So do I."

The offending idea is a passage in this month's Bundesbank report, which noted that "the currently satisfactory financial situation of public pension treasuries should not detract from the fact that other changes would have to be made to ensure its sustainability".

And what the bank proposed, to ensure stability of the pension system, was a further gradual increase in the legal retirement age, already set to go from 65 to 67 by 2029, to reach 69 years by 2060.

Life expectancy in Germany is now 78 for men and 83 for women, and it is continuing to rise.

Economists threw their weight behind the Bundesbank and some even challenged the bank's estimate as falling on the low end. According to estimates by the economic think-tank IW Institute in Cologne, Germans would need to work until 73 if they want to maintain their pensions and contributions at current levels.

Even if Germans are increasingly delaying their retirement, the effective age when most leave employment is 62. That means around two decades of pension payments to finance, while the working population funding these payments is shrinking as the country ages rapidly.

The Bundesbank had already come up with the magic number back in 2009. But it resuscitated the "69" figure this week as it wanted to "contribute to the debate" and incite politicians to adopt a more long-term vision, a spokesman said.

Political parties, which are already warming up for the general election next year, are expected to make pensions a key theme of their campaigns. With 20 million retirees eligible to vote, politicians will be seeking to win on issues ranging from the level of future pensions to the question of equalising pension payments in east and west Germany and the amount of contributions to be levied on future working generations.

But no one expects to win votes by telling Germans they will have to work two years longer.

Mr Gabriel's Social Democrats - a junior partner in the ruling right- left coalition - have firmly rejected the idea of raising the retirement age further.

For German Chancellor Angela Merkel's Christian Democrats, the question has not even arisen, the party's general secretary said, stressing that 67 is the right age for retirement.

But economists threw their weight behind the Bundesbank and some even challenged the bank's estimate as falling on the low end.

According to estimates by the economic think-tank IW Institute in Cologne, Germans would need to work until 73 if they want to maintain their pensions and contributions at current levels.

Mr Axel Boersch-Supan, an economist at the Max Planck Institute, suggested that the retirement age should be pegged to the development of life expectancy.

German politicians' refusal to address the issue on what comes after 2030 simply shows a "fear of confronting the truth", said Mr Boersch-Supan.

IW president Michael Huether said: "And don't forget (that) what the Bundesbank is talking about actually concerns those who are born after 1995. That means people who are turning 20 only now. It's not about making someone who is working now retire only at 69 or 70."

But the issue is making many nervous, particularly at a time when many savers are seeing little gains from their long-term investments against the backdrop of the European Central Bank's low interest rate expansionary policy.

"Working until 70 while others feast on canapes and some are unemployed," huffed a reader on Spiegel Online.

But Mr Huether argued that the Bundesbank's suggestion was likely to be the "least damaging solution for everyone".

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on August 22, 2016, with the headline 'Work until age 69? German central bank reignites debate'. Print Edition | Subscribe