US government pensions are worthless

Maternal pension - real estate market - business tax - US budget dispute

In the coalition negotiations, it is planned that child-rearing periods for children born before 1992 will in future be assessed at two earnings points when calculating pensions, instead of the previous one. The additional earnings point is currently translated into a higher monthly pension of EUR 28.14 in the west and EUR 25.74 in the east. The additional costs of such a higher assessment of child-rearing periods under pension law are estimated by the German Pension Insurance at around 6.5 billion euros per year; this corresponds to an increase in pension insurance expenditure of around 3%. It must be taken into account that this additional burden will initially not decrease in the coming years, as it can be assumed that the children of almost all women who are new to retire were born before 1992.

It is currently being discussed that this additional expenditure for taking child-rearing periods into account when calculating pensions should no longer be financed from tax revenues, but rather through a reduction in the sustainability reserve. This proposal is very astonishing, as the principle that previously applied that reimbursement for child-rearing times was intended by the general public and should be financed accordingly from general tax revenues. After all, the offsetting of child-rearing periods is non-insurance benefits, so it cannot be understood why these should be financed by contributions from employees subject to social insurance. Furthermore, serving these additional claims from contribution funds amounts to a redistribution from young to old or from contribution payers to contribution recipients, whereas if they were financed from tax funds, all groups of people would be involved according to their tax capacity.

Due to the currently well-filled sustainability reserve, the contribution rate could be reduced in the coming year. As can be easily shown mathematically, with otherwise unchanged income and expenditure, the sustainability reserve would be completely used up over a period of four years by the additional burden of the maternal pension. Should the contribution rate - as actually planned - be lowered next year, this range will be further reduced. But even with the contribution rate unchanged and without the increased maternal pension, it cannot be assumed that the sustainability reserve will continue to rise. Employment subject to social security contributions is currently at a record level, and a further increase is rather unlikely due to demographic developments alone. The contribution payments for child-rearing periods by the federal government will not increase disproportionately without a change in the law, as these only depend on the contribution rate, the number of children and the wage development. Thus, the contributors have to forego a reduction in the contribution rate in the short term and even expect faster increases in the medium term.

Regardless of the funding, the question is what the upgrading of child-rearing periods is aimed at. This cannot create incentives for higher fertility. The higher rating also appears unsuitable as a measure against poverty in old age, as it is precisely the current and future pensioners who are better off. Even if the risk of old-age poverty increases in the future, the current generation of pensioners is hardly affected at all. If child-rearing periods before and after 1992 are to be treated equally, it remains incomprehensible why both should not be financed from tax revenues. Ultimately, such a measure can only be seen as a gift of choice for older mothers who lost any sense of the tax system.

Wolfgang Nagl,
ifo Institute Dresden
[email protected]