New doubts about the basic pension

The political goal of the basic pension is clear, but its implementation is a matter of great concern for experts. The government is threatened with a new dispute.

Anyone who has worked for many years but earned little should receive a basic pension from 2021.

NAfter a break over Christmas and New Year’s Eve, January will quickly become a working month again for the Union and the SPD – especially when it comes to pensions. First of all, Federal Labor Minister Hubertus Heil (SPD) has to lash down the details of the basic pension for low-wage earners in a draft bill. New disagreements between the coalition partners cannot be ruled out. In essence, after a long struggle, the coalition agreed on this in mid-November. For the Groko supporters within the SPD, which was torn up on this issue, the basic rent is the most important argument to hold on to the alliance. Because if the coalition failed, the heartfelt concern ended up in the drawer again.

That the project is anything but trivial, despite the general agreement in the coalition, is shown by the fact that Heil did not succeed in submitting the draft to the so-called early coordination between the departments before Christmas. The technical and legal problems are too great, it is said in coalition circles to justify. According to the coalition resolution, people who have worked for at least 35 years, raised children or cared for relatives, but who receive less than 80 percent of the average pension amount from their pension contributions, should receive a bonus. Your entitlement would be almost doubled retrospectively – with a cap of 80 percent. Times of bringing up children and caring for relatives are included.

However, several aspects make it difficult for the experts to legally implement the coalition resolution. In deviation from the coalition agreement, the Union and the SPD have agreed not to grant the basic pension only to those pensioners who are considered “needy” despite an income from the statutory pension. Instead of a comprehensive means test, in which the assets (such as inheritances or investment income) would also be taken into account, the pension insurance should only carry out an income test with the help of the tax offices.

“Flagship project of digitization”

However, the pension insurance companies have serious concerns about whether the preparatory work for the data transfer between pension and tax authorities can be done so quickly that the basic pension can be paid out as planned from the beginning of 2021. The introduction of the mother’s pension five years ago had already been a tough challenge for the administration. The federal states have meanwhile informed the federal government that the financial administration needs two years in advance for such IT projects. When the Riester allowances were introduced, the changeover even took five years, according to the pension insurance.

Largely automated procedures, however, are a prerequisite for the introduction of a basic pension with an income check without completely excessive administrative effort. Otherwise, data would have to be evaluated manually for around three million basic pensioners – by several thousand employees in the pension insurance additionally. Heil wants to avoid the scenario at all costs. He hopes for the basic pension as the “flagship project of digitization”.

Not only the tight deadline until 2021 is putting the officials in Heils Ministry under pressure. In addition, there is always a delay in the availability of control data. For basic pension applications in 2021, only tax assessments from 2019 can initially be evaluated. This can distort the eligibility, especially for those who have just retired and whose tax assessment still shows a (too high) earned income.

Last but not least, the financing of the new pension is a cause for concern. This applies in particular to the planned introduction of a tax on share purchases, which should bring in around 1.5 billion euros a year from 2021. The Union rejects – supported by many economists – the draft for a financial transaction tax submitted by Finance Minister Olaf Scholz (SPD) because it would primarily affect small investors. The pension insurance is alarmed: It fears that the coalition will eventually fall back on contributions instead of taxes.

The self-employed should operate more pension schemes

In the new year, Heil does not only want to quickly set the pegs for the basic pension. In January he wants to present two bills that are also included in the coalition agreement: cross-pillar pension information and pension provision for the self-employed. The coalition wants to enable citizens to receive information from all three pillars about their individual security in old age. This should make it easier for them to recognize the need to take out additional old-age provision to secure their standard of living. The cross-pillar pension information should be under federal supervision.

The planned retirement provision for the self-employed appears even more demanding. Several federal governments have already failed because of the protests of those affected. The background to the political plans is the recognition that the self-employed often do not save enough voluntarily and are then dependent on state support in old age, such as basic social security. A key question is which alternatives the policy allows for security in the statutory pension insurance. The coalition agreement states: “In order to improve the social protection of the self-employed, we want to introduce a founder-friendly pension obligation for all self-employed who are not already covered by other compulsory insurance (for example in professional pension schemes).”

In principle, the self-employed should be able to choose between the statutory pension and (as an opt-out solution) other types of insolvency-proof pension, whereby these must lead to a pension above the basic security. Riester and Rürup pensions should be included, possibly also the repayment of a real estate loan – a life insurance policy, on the other hand, only if it cannot be sold.