Proposed extended pension benefits pose challenges for younger generations
A proposed extended maintenance of pension levels leads to disadvantages for younger individuals, as per a fresh computation by the Ifo Institute in Dresden. These individuals gain from assured pensions in retirement, but must shell out higher contributions throughout their working years, the institute stated in a release on Thursday. The changes mainly benefit current pensioners and those nearing retirement.
The assessment concentrates on a significant element of the so-called pension package II, which was authorized by the federal cabinet in May. This package calls for the pension level to be fixed at 48% past 2025, up until mid-2040. The pension level represents the proportion of the average income that the standard pension represents - it's paid after 45 years of contributions at average salaries.
The pension level has hovered around 48% for some time. It is legally ensured not to dip below this level next year. However, absent reform, it would gradually decrease and, according to the government, would eventually drop below 45% in the long run. As per the cabinet decision, the level of 48% should persist until 2040. This increase in pension contributions will be funded.
Joachim Ragnitz, deputy head of the Ifo branch in Dresden, worked out in the report how these modifications would affect various age groups financially. "In essence, all age groups below 26 years old are negatively impacted by the pension reform as their additional contribution payments exceed their additional pension entitlements in present value terms," the analysis concludes.
The decision to maintain the pension level at 48% until 2040 primarily benefits older individuals and those approaching retirement. Conversely, the newer reform proposals incur higher contributions for younger individuals, potentially outweighing their future pension benefits.
