When baby boomers retire in three years’ time, that could pose a problem for our pension system. A statutory share pension, which the Federal Ministry of Finance has initiated, is intended to remedy the situation. What you need to know about this.

The Federal Ministry of Finance has launched the planned multi-billion dollar stock pension to strengthen statutory pension insurance. The entry into a capital cover is an important step in order to make the pension more demographically stable and to increase the pension level in the long term, according to a paper, as the German Press Agency learned from ministry circles. The “Frankfurter Allgemeine Zeitung” reported about it first.

The statutory share pension is intended to make the statutory pension in Germany “grandfathered according to the Swedish model,” writes the FDP in an information sheet. The idea: policyholders should pay a small percentage of their own gross income into a statutory share pension. The contribution rate to the statutory pension insurance will be reduced accordingly.

According to the paper, the capital stock required to get started with the capital cover, a so-called share reserve, is to be built up “partially through credit financing” – i.e. with debt. To this end, budget funds in the form of loans totaling ten billion euros are to be allocated in 2023. From the mid-2030s, income from the capital stock should contribute to stabilizing the development of the contribution rate for statutory pension insurance, according to the paper. The purpose of earmarking the income from the capital stock in favor of the German pension insurance is to be anchored in law. The timetable has been coordinated with the Ministry of Labor and Economic Affairs.

According to the Treasury Department paper, the aim is to use the capital stock to take advantage of the “return opportunities” of the global capital market. Some European countries have been doing this successfully for decades. As can be seen from the information letter, the share pension has the advantage that “even those on low wages in particular” can share in the economic success. They “receive more pension in the long term through the statutory share pension – without having to spend more money on it,” it says. It offers a “high-yield investment with low risk”.

Criticism came from the German Federation of Trade Unions, for example. Board member Anja Piel said: “Every private investor is advised not to finance stock portfolios through debt.” That in an aging society more money has to be spent on pensions is correct. “But it is highly doubtful whether it is a real relief for this challenge to borrow on the capital market and then pay debt services with interest and compound interest from the earnings of a capital stock.”

The head of the Federal Association of Small and Medium-Sized Businesses, Markus Jerger, said: “From 2025, our pension system is threatened with a financial emergency due to the retirement of the baby boomer generation. By 2040, it will then be mathematically less than two employees who will finance one pensioner. Even the stock pension, which we advocate as an additional pillar of old-age provision, cannot compensate for the structural deficits.”

Since the European Central Bank has been raising the key interest rate step by step, more and more banks are following suit. Credit institutions are outdoing each other with ever higher interest rates on savings deposits. Now the first German bank offers 1.5 percent call money interest – nationwide.

If the federal government wants to prevent the collapse of statutory pension insurance, it must undertake fundamental reforms. “These include adjusting the retirement age to 68, more incentives for earning opportunities in old age and including civil servants as contributors to social security.”