Ifo survey: German economists take sceptical view of pension policy

The majority of German economists opposes the pension policy pursued by Germany’s grand coalition between the Christian Democrats and the Social Democrats, according to the latest Economists Panel conducted by the Ifo Institute and the Frankfurter Allgemeine Zeitung. “Many colleagues are concerned about the financing of the pension system,” notes Ifo expert Niklas Potrafke, who supervises the survey. “One long-term financing measure for the pension system recommended by many survey participants is to significantly increase the retirement age,” he adds. A large majority of survey participants (61 percent) disagree with Finance Minister Olaf Scholz’s (SPD) proposal to stabilise the pension at its current level of 48 percent of average income beyond 2025, versus only 19 percent who support this proposal. Scholz’s idea of setting up a fund financed by tax revenues (a demographic reserve) to maintain the current pension level up until 2040 was rejected by almost 60 percent of the economists surveyed. The fundamental attitude underlying many responses is that the grand coalition is making a lot of promises to Germany’s ageing population that will be difficult to keep financially and are burdening younger and future generations.

The course of action that most of the economists surveyed would recommend to politicians to finance the statutory pension in the long term is to raise the retirement age (38 percent). Many survey participants cited 70 years old as a possible retirement age, while others believe that 69 or 68 years of age would be more suitable. Only one in ten survey participants supports an even higher retirement age, while 13 percent recommends higher tax subsidies and 19 percent sees higher immigration as a potential solution. But the economists surveyed do not expect their proposals to be implemented. Over a third expect the government to opt for higher tax subsidies instead, while almost a quarter anticipates higher pension contributions and only 15 percent see a higher retirement age as likely. A relative majority regrets the weakening link between pension contributions paid and subsequent pension entitlements. Only a small minority of 7 percent of survey participants endorses Scholz’s statement that stable pensions would help to prevent the emergence of a “German Trump.”

Old age is not yet a major problem in Germany according to the 78 percent of the economists surveyed, but 46 percent believe that it could become a major issue in the future. Reforms are required to prevent this. 49 percent of survey participants believe that a private or corporate pension should be mandatory to supplement the state pension.

Overall, German economists’ responses to the panel reveal a high degree of dissatisfaction with the coalition government’s pension policy. Some survey participants level very harsh criticism at the government. “The grand coalition is pursuing policies for the elderly and forgetting the young,” warns Ifo income distribution expert Andreas Peichl. “Unfortunately, politicians are departing from the reform path of recent years,” complains Gerhard Wegner, University of Erfurt. Oliver Landmann, University of Freiburg, criticizes the coalition of pursuing “head-in-the-sand politics.” The Kiel-based economist Rolf Langhammer warns that the coalition will not be able to honor its promise of “double stop lines” (no contributions higher than 20 percent and a pension level of at least 48 percent) because the promise is based on unrealistic assumptions. Friedrich Breyer, a healthcare economist from Constance, highlights the demographic problems involved: “A generation that does not provide enough offspring cannot expect its children to provide lavish pensions, and needs to make provisions instead.”

A total of 144 German economics professors took part in the survey.