Pension cuts affect not only older people but also, and especially, younger workers. This is the finding of a study published Thursday in Berlin by the union-affiliated Hans-Böckler Foundation. Proposed measures such as a higher retirement age or a reduction in pension levels are not, contrary to frequent claims, "a contribution to greater generational fairness," the authors warn.
"Upon systematic examination, no corresponding positive effects for younger people are evident; in some cases, they even work in the opposite direction," the Böckler Foundation stated. If some such ideas were implemented, the internal return, the ratio of contributions paid in to pension payments received, would also suffer, particularly among younger people.
Positive effects for both older and younger people would instead be expected primarily from measures that lead to greater employment in Germany, "such as higher immigration or stronger labor force participation by previously non-employed persons," the foundation added.
The study was conducted by researchers from the Institute for Macroeconomics and Business Cycle Research (IMK) and the Economic and Social Science Institute (WSI) of the Hans-Böckler Foundation, together with researchers from the Berlin University of Applied Sciences (HTW Berlin).
The study examined the impact of a gradual increase in the standard retirement age to 68 years by 2056. While this could dampen the rise in contributions to statutory pension insurance, it would result in a loss of return for all people from roughly the 1970 birth cohort onward. Those born around 1980 would face the greatest losses, but younger insured persons would also be worse off according to the study.
A lower pension level from 2031 onward, as particularly demanded by younger Union parliamentarians, could help reduce state subsidies to pension funds according to the study, but would burden all birth cohorts from approximately 1950 onward. Very young workers would be affected roughly to the same extent as those born from the mid-1960s onward.
According to the experts' assessment, changes to the so-called sustainability factor would have hardly any impact on the internal return of statutory pension insurance. The contribution rate and security level for pensions would rise or fall roughly to the same extent in each case. However, a lower security level would increase the risk of old-age poverty, they noted.
According to the study, mandatory inclusion of self-employed individuals in the statutory pension system would have a positive effect on old-age security. While the short-term effect would be minimal, in the long run contributions could be lower, and returns would increase particularly for younger insured persons.
Overall, the analysis shows "that some measures whose implementation is sometimes loudly advocated in public debate would have negative consequences specifically for the younger generation in terms of security," the authors warn. The supposed "relief" for younger people through lower contributions would lead to a lower security level and lower contribution returns for them. While this could potentially be offset through increased private retirement savings, this would also mean higher costs and return risks for those affected.
At current pension levels, nominal returns in statutory pension insurance are relatively balanced for all birth cohorts from the late 1940s to 2010, ranging from 3.1 to 3.3 percent per year for men and just under 3.6 to 3.8 percent for women, according to the study. Only cohorts born earlier achieve slightly higher values. "Statutory pension insurance therefore offers decent returns, for younger people just as much as for older people," co-author Sebastian Dullien explained.
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