Germany’s poor pensioners and the controversy over the future pension system

Germany's poor pensioners and the controversy over the future pension system

As many as 64 per cent of people receiving a pension of less than €800 are women. The reason: the gender gap created by lower pay and the breaks in their careers due to their role as care givers.

(European Union - EP)

Sabine (not her real name) is 67 years old and has a pension of €800 – the meagre financial support received after a lifetime of selling flowers as a self-employed worker. “It is barely enough to cover my rent of €460 and my food bill for the month.”

Sabine retired a year ago and has since then been relying on one of the food banks of the Berliner Tafel organisation, located in the Reinickendorf district in the northwest of the German capital. There, for just €1, she is able to fill the shopping trolley she has brought from her home.

“I would really struggle to survive without Tafel,” insists the woman, whose two daughters, she says, already have it hard enough covering their own costs, never mind worrying about their mother. “Everything is very complicated these days, but we have to get by.” Sabine is not optimistic about the future ahead: “This cost of living is rising all the time, and pensions are rising too, it’s true, but not as much.”

Her situation contrasts with the macroeconomic figures of the most prosperous country in the European Union: unemployment of just 4.9 per cent - the lowest since reunification – and a surplus in 2017 of €261 billion, the world’s highest, in absolute terms. And yet she is by no means the only person in this position.

According to official figures from the Federal Ministry of Labour and Social Affairs, in 2016, 48 per cent of German retirees, or more than eight and a half million people, had a state pension of less than €800 a month. On raising the bar to €1,000, the proportion was as high as 62 per cent of the total number of retirees (almost 11.5 million people).

The authorities point out that state pensions are often supplemented by income from private funds or pension plans offered by companies. There is, however, no data on how many pensioners benefit from this extra income.

Poverty in old age (in Germany one-person households with incomes below €892 – that is, less than 50 per cent of the average income – are defined as poor) is especially prevalent amongst women. Another statistic often quoted in Germany refers to people at risk of poverty, which is set at those on 60 per cent of average income, which works out at around €969.

Up to 64 per cent of people receiving a pension of less than €800 are women. The reason: the gender gap created by lower pay and the breaks in their careers due to their role as caregivers.

This is the case for 70-year-old Maria, who also goes to the Reinickendorf soup kitchen every Friday.

Widowed five years ago, Maria has a pension of €840 a month, after having worked for the postal service for 20 years. She had to stop working two decades ago due to health problems and has been going to the Berliner Tafel for ten years. “We all know each other here, it’s almost like a family,” she says. “At places like Tafel, you realise how much you need other people to get by,” says the Berliner.

Neither Marie nor Sabine want to give their real names or have their photos taken. The stigma of being old and poor still weighs heavily in a country with such a strong savings culture. But they are not isolated cases.

The Berliner Tafel soup kitchens dotted all around the city cater for 50,000 people on a regular basis. According to the organisation’s own figures, 29 per cent of them (14,500 citizens) are pensioners.

“Many of the people who come here are asylum seekers and long-term unemployed. But there are a lot of pensioners too,” explains Barbara Wolters from the Reinickendorf Tafel. In this case, most of them are German women who live alone and whose low-wage jobs have left them with a low pension. “I myself have a pension of €500 and if it were not for my husband I would also be in a very difficult situation.”

The future of pensions

Population ageing represents a major challenge for the German pension system, but it is not the only one. “Other changes such as digitisation, globalisation and a low-profit environment present challenges for all sectors related to security in old age,” says Hermann Buslei of the Institute for Economic Research (DIW).

In the future, the number of pensioners forced to go to food banks, like Sabine and Marie, may increase considerably. A study published in 2017 by the Bertelsmann Foundation estimated that by 2036 the risk of poverty in old age could increase to 20.2 per cent of all pensioners, as compared with 16.2 per cent today.

Women, especially from the states of former East Germany, people with low educational qualifications, people who have been unemployed for long periods and foreign-born citizens (migrants) are the groups most likely to swell the ranks of poor German pensioners.

In a bid to address this, the Bundestag recently approved the Rentenpaket, a pension reform package, proposed by the government, which sets pensions at a minimum of 48 per cent of wages until 2025. The German pension system is financed through the direct payment of a quota deducted from the monthly salary. The scheme approved by the German parliament also guarantees that, until 2025, the contribution rate will not be in excess of 20 per cent.

Finance Minister Olaf Scholz, a social democrat, has, however, already announced his interest in extending this model until 2040, as part of the efforts to avoid the emergence of a “German Trump”.

With this measure, Germany is moving away from the pensions systems of northern Europe and closer to those of the south. Some economists, such as Bernd Raffelhüschen, an advocate of Agenda 2010, the controversial reforms introduced under social democrat Gerhard Schröder, see this as “a big mistake”.

“This is the wrong path. We, with Agenda 2010, decided to tell the younger generation that they would have to contribute the same amounts as their parents’ generation. But if the number of people paying contributions falls, of course we have to reduce the replacement rate [pension income after retirement],” explains Raffelhüschen.

“In France, the replacement rate is 70 per cent or higher; in Italy, 55 per cent; in Spain, something similar. Retirement schemes are more generous in southern Europe than in Germany, but it has now been decided that we cannot cut pensions any more, at the same time as capping contributions and the retirement age. This is clearly not the right path,” he adds.

Raffelhüschen advocates raising the retirement age and linking it to life expectancy, “as has been done in Scandinavia”, he says. The economist sees this as the only way of guaranteeing the sustainability of the system.

As for old age poverty, Raffelhüschen believes that the media has exaggerated the phenomenon and that the 1.1 million pensioners, for example, with a mini-job at the end of 2017, (part-time jobs for a maximum of €450 ($512) a month), “work because they want to, not because they have to”.

Pensioners are able to find these jobs through advertisements targeted directly at them, as in a centrally located cafeteria in Dresden, where a poster advertises a mini-job for “high school pupils, university students or pensioners”. The advertisement was only posted in the women’s bathroom.

“This is not going to change. The politicians are going to fill their pockets, but we are not going to see any difference,” concludes Sabine before leaving the food bank, with her shopping trolley now full.

This article has been translated from Spanish.