No, the German pension level is not “one of the highest in the world”

The Federal Ministry of Economics made a fool of itself with a tweet about state pensions. In the Federal Republic they are not even in the European average.

A short tweet from the Federal Ministry of Finance on August 13, 2022 is likely to remain in the archives for a long time, although department head Robert Habeck probably wishes it had never been written. A woman named Renate Apfelthaler wrote to the finance minister on Twitter:

“Mr. Habeck, you don’t seem to know the economic data, Germany has slipped far in international comparison, we have the worst pensions, schools and infrastructure are ailing, and the debt is increasing.”

— Renate Apfelthaler (@RenateApfeltha2) 13 August 2022

Not the scolded vice-chancellor himself, but an employee in the ministry replied:

“That is not true. The German economy is stable, the German pension level is one of the highest in the world and the German debt is comparatively lower.”

The ministry did not say that the national debt in Germany is lower than who. This is of course the case when comparing with more heavily indebted countries – although there are still a few footnotes to consider on this subject. More on that later. This text is primarily about the claim that the German pension level is “one of the highest in the world”. In reality, it is below the average for the 28 EU countries, or even the average for the 38 OECD member countries.

According to Allianz, the level of the standard pension – i.e. the statutory pension payment after 45 years in relation to last net earnings – in Germany in 2021 was 49.4 percent net, i.e. after deduction of contributions to health and long-term care insurance, but before tax. The pension level is thus lower than previously; In 1998, the value was still 53.6 percent.

In 2020, the partly taxpayer-funded platform Correctiv warned against an allegedly “misleading comparison” of European pensions and pension levels, but in its contribution to the issue only rejected the claim that the level of the German state pension is the lowest in Europe. That is actually not the case. However, it is also far from being one of the highest in the world. The different pension levels, “Correctiv” also claimed at the time, were in fact not comparable at all:
“In general, pension systems are too complex for simplistic comparisons: there are different models in each country.” And:
“But there are no databases where figures are listed for an international comparison.”

Others also argue in this way to ward off criticism of the German pension level. It is trivial to point out that pension models differ from country to country in terms of contribution amount, minimum payment period, retirement age and subsequent taxation. Nevertheless, comparisons can be drawn.
The currently most up-to-date set of figures can be found in a report to the British Parliament of 11 March 2022, which makes an international comparison, partly based on OECD figures, but also with current calculations from the Bank of England, as of 7 March 2022 .

First, the OECD figures from the “Pensions at a Glance” overview from 2021 as of 2020: According to this, the so-called pension replacement level – i.e. the receipt of public pension payments in relation to the last net income – was 90 per cent. Portugal and 88.7 for Luxembourg percent, for Austria with 87.1 percent, Denmark with 84 percent, Greece with 83.6, Italy 81.7, France 74.4 and the OECD average of 62.4 percent. And the value for Germany – here before deducting the health and long-term insurance contribution – is 52.9 percent.

With all the differences between the individual systems, not only the respective quotas but also the absolute amounts can be compared. According to Deutsche Rentenversicherung, the average total pension paid (ie including widow’s pension and child benefit) per 1 July 2021 a total of 1089 euros, for men 1208 euros and for women 1001 euros. The Austrian standard pension is a good 800 euros higher on average per month, which is also due to the fact that the pension fund in the neighboring country transfers 14 times a year.
The systems in Austria and Germany lend themselves well to a detailed comparison: In Austria, the pension contribution is 22.8 percent of income, with 12.55 percentage points borne by the employer and 10.25 by the employee. In Germany, it is somewhat lower at 18.6 percent and distributed equally. On the other hand, women in Austria are allowed to retire at 60 and men at 65.

The British Parliament’s pension comparison quoted above also includes calculations by the Bank of England of the average pension payments from selected European countries. According to this, the average standard pension in spring 2022 in Denmark was 10,347 kroner or 1,391.17 euros per month, the average payment in the Netherlands was 1,244.35 euros and in Ireland 1,013.20 euros per month. In Switzerland, the old-age pension from the old-age and survivor’s insurance (AHV), which consists of the three pillars of a basic pension, additional labor market benefits and voluntary supplementary insurance, averaged CHF 1,862 in 2020. There is a general pension from age 64 for women and from age 65 for men.

So Germany is quite far behind in Europe, both in terms of pension levels and absolute payouts. The private home ownership rate also plays an important role in determining the standard of living in old age. And this is where Germany comes last in the EU: In the country with high taxes and fees, high property prices in city centers and hefty property transfer taxes, only 50.4 percent of citizens own their own apartment or house, in contrast to 74 percent of the French, 74, 6 percent of Greeks and 96.1 percent of Romanians.

It is also part of the overall picture of old-age provision in Germany that the pension level over the next 15 years must fall significantly from the already modest level – even if Chancellor Olaf Scholz and Labor Minister Hubertus Heil stubbornly dispute this fact. . In the next 15 years, a total of 12.9 million employees from the baby boomer generation will switch from paying contributions to receiving benefits. According to the pension commission, the pension level should therefore fall from 2025 onwards.

Conclusion: The claim by the Federal Ministry of Economics that the German pension level is one of the highest in the world is untrue and grossly misleading the public.

The department’s two other claims are also on shaky ground. In the second quarter of 2022, the economy in Germany stagnated compared to the already weak first quarter. For the third quarter, most economists expect a decline. And in the second quarter of this year, German economic output was 0.2 percent lower than in the fourth quarter of 2019, the last quarter of the period before Corona. According to a recent survey by AlixPartners, 71 percent of German managers expect a recession in 2022 and 2023. The description of the situation “stable” is at least a euphemism.

In terms of debt, Germany is actually still relatively cheap within the EU. While Greece carries liabilities equal to 189 percent of the country’s economic output, Italy 152.6 percent and France 114.4 percent, the German ratio of 68.2 percent looks reasonable. In absolute terms, the debt of federal, state and local governments at the end of 2021 amounted to 2.32 trillion euros.
Not included in this figure, however, are the federal government’s now 28 special funds, that is, actually special debts or secondary budgets, including the 100 billion euros to better equip the Bundeswehr. The future state subsidies to the pension fund are also missing from the nominal debt figure. And another large item does not appear either: the Deutsche Bundesbank’s target balance.

The target system is a clearing practice among the national central banks of the euro countries. Originally, the money flows between the central banks were designed in such a way that no permanent mutual claims should arise between the countries. In fact, the system evolved into tacit lending from certain central banks to others. Here, Germany is exceptionally at the top within the EU, and by a large margin. Per On 31 July 2022, the Bundesbank had outstanding claims against other countries’ national banks totaling EUR 1.166 trillion. Italy is at the other end of the scale: its national bank owed a total of €568.1 billion to other Eurosystem central banks at the end of July 2022.

Should the European currency ever collapse, the Bundesbank would have to write off its outstanding debt (and the part of the ECB bonds that Germany is also responsible for). In fact, the abundant trillion had to be added to the regular 2.3 trillion euros in national debt.

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