Which type of pension is able to sustainably retain the standard of living in retirement? How come that pensioners in Austria are receiving a significantly higher state pensions than their contemporaries in Germany? And which conclusions can be drawn from this for the debate at European level? These and other questions relating to pension schemes were addressed by a panel discussion on 27 June, organised by AK EUROPA, the Brussels office of the Austrian Federal Chamber of Labour, the Brussels office of the Austrian Trade Union Federation ÖGB and the Brussels office of the German Trade Union Federation DGB.
In spite of a similar starting position with respect to their pension systems, over the past decades, Germany and Austria have moved in different directions. Whilst in Austria, the standard of living in retirement continues to be almost exclusively maintained by the public pension scheme, Germany has moved away from the primary objective of securing the standard of living through state pensions and has supplemented the so-called first pillar by voluntary occupational (second pillar) and personal pension (third pillar).
Josef Wöss, pension expert at the Austrian Chamber of Labour (AK) and Head of Social Policy Unit, explained based on results of a comparative study that an average male pensioner in Austria receives a far higher state pension than a pensioner with a comparable employment history in Germany. The former has almost € 1,820[i] at his disposal, whilst a pensioner in Germany has to be content with € 1,050. The difference is similar with regard to women. Nevertheless, the overall pension level is lower, which is also results from the still unequal pay for women and an interrupted employment history due to caring for relatives.
Following the introduction, an animated discussion hosted by Verena Schmitt-Roschmann, Head of the Brussels office of the German Press Agency (dpa), was held by both panel and audience. Markus Hofmann, Head of Social Policy Department at the German Trade Union Confederation (DGB), stated that Germany had left the road to success for security in old age implementing the reforms at the beginning of century. The three-pillar model made up of state, funded occupational as well as personal pensions did not work. Instead of compensating cuts to state pensions by occupational and personal pensions, or even increasing replacement rates in proportion to earned income – as suggested prior to the reforms – benefit levels were reduced, which, in turn, significantly increased the risk of old-age poverty – in particular for single women and single mothers.
However, Fritz von Nordheim, Deputy Head of Unit on Modernisation of Social Protection Systems, (DG EMPL), assessed the situation slightly different: a multi-pillar system was generally the right way forward. Rather, the problem in Germany lied in the “half-hearted implementation” of the reforms and above all the lack of regulation of funded pension providers. Successful examples of occupational pension schemes showed that they were particularly effective if they wer compulsory or partly compulsory. However, in Germany, pension schemes based on the second and third pillar are voluntary. Hence, it is up to everybody to decide for themselves whether and to what extent they want to supplement their state pension with occupational or personal pensions. However, Markus Hofmann pointed out that most people with low incomes, who would benefit from increasing a low state pension by occupational or personal pension schemes, lack access because of a lack of financial means. Hence, it was the objective of the DGB Pension Campaign to guarantee a pension, which would enable a good life in retirement and prevent old-age poverty, for all people. A problem that is again the subject of attention – not least because of a recently published study of the Bertelsmann Foundation.
In his concluding statement, Josef Wöss remarked that expanding the state pension system to encompass the entire working population, which also includes the self-employed and gradually brought into line the pension requirements for civil servants, had been an economic success in Austria. There were hardly any real cost savings by expanding the second and third pillar. Even though this was not to be fundamentally rejected; the design of occupational and personal pension schemes mattered: above all, they should have a supplementary, but not a substituting effect.
Even if Fritz von Nordheim put into perspective a one-sided acceleration by the European Commission towards expanding personal and occupational pension systems, a Commission proposal on a Pan-European Personal Pension Product, PEPP, which clearly aims at strengthening the third pillar and in doing so a personal pension schemes, is also published this week.
[i] For the purpose of comparability apportionment to 12 months. In general, pensions of € 1.560 are paid 14 times a year in Austria. Values for Germany and Austria respectively for the year 2013.