Instead of saving shares, as the FDP had in mind for the pension insurance, it has initially only become a share reserve. A system change looks different. But the ten billion euros that will be invested in the coming year should have a “pull effect”.
The word “Aktienrente” does not appear once in the paper from the Federal Ministry of Finance that is currently circulating. With good reason, because with the federal government’s plans to finance old-age provision, there will initially be no change in the pension system. What has now been agreed is a first step. But the dispute over the right reform model is not settled.
If the FDP had its way, saving in shares would have been integrated into the statutory pension scheme. The insured would then have paid part of their pension contribution of currently 18.6 percent into a fund and increased their pension with the income at the end.
SPD and Greens are against it. Instead, the so-called share reserve should help to support the pension system, which is financed by contributions, in the long term and to reduce the federal subsidy for pensions: Every year, the state pumps 100 billion euros into the pension fund with taxpayers’ money. This corresponds to around a quarter of the federal budget.
The current plans are a compromise to keep the pension level at 48 percent and the contribution rate at a maximum of 20 percent. The “basic concept” from the Ministry of Finance, which is said to have already been coordinated with the Ministry of Labor and Economics and is available to the magazine “Capital”, provides for the following “roadmap for old-age provision”: Next year, a capital stock of ten billion euros is to be invested in the capital market for a specific purpose . In addition, contributions in kind are to be transferred to the fund. These can be federal investments in companies such as Deutsche Telekom or Deutsche Post.
These ten billion euros, which according to the coalition agreement should actually be invested this year, will therefore be “partially financed by credit”. The federal government wants to take out a loan for this, which the fund should in turn pay interest on. The Ministry of Finance labels this process as a “transaction” that does not appear in the budget. Finance Minister Christian Lindner (FDP) wants to use this trick to bypass the debt brake. From mid-2030, the returns on the capital stock should then “make a contribution to stabilizing the development of the contribution rate for statutory pension insurance”.
In order to invest the money globally in the capital market, the federal government wants to set up an “independent public body”. The model is the German state fund Kenfo, which was set up to pay for the disposal of German nuclear waste. An investment committee is to have a say in the positions in the stock reserve fund’s portfolio by “specifying the general conditions for asset management”.
Investments are to be made in active and passive financial products in order to “consider sustainability criteria, to be able to react to unexpected market developments in an agile manner and not to have to exclude certain asset classes such as private equity from the outset,” the paper says.
The concept will benefit taxpayers in the long term, says Andreas Hackethal, Professor of Finance at Frankfurt’s Goethe University. Because of the return on share reserves, less tax revenue would have to flow into the pension fund from the mid-2030s. “Future taxpayers will be relieved. The paradigm shift is here and has a symbolic effect,” Hackethal said about “Capital.”
The investment strategy and the risk/return profile are reasonable. “The investment is extremely passive, boring and simple. That’s good,” says the financial expert. However, the amount of ten billion euros is too small to move the market. It is to be hoped that the share reserve will have a “pull effect” and that private individuals will also invest in the capital market, says Hackethal. “Once the hurdle falls, more people will generally invest in stocks.”
The FDP sells the share reserve as a first step towards the “share pension” with which the Liberals went into the election campaign. Markus Herbrand, financial policy spokesman for the parliamentary group, says when asked by “Capital”: The compromise found in the start-up financing shows that all traffic light partners have recognized “that the FDP proposal for diversifying pension financing was correct from the start and urgently needs to be implemented”.
According to Herbrand, the share reserve now planned should be expanded further. He wants to stick to the stock annuity model. In the years to come, we will “actively work to ensure that the financing model currently agreed with our coalition partners is further developed in a meaningful way, for example through the individual option of increasing one’s own contributions to the capital market pillar of the pension insurance or through an automatic investment share from the normal pension contributions in the stock pension becomes”.
The FDP is thus fueling the unions’ fears that the share reserve is the way to large-scale share savings within the statutory pension insurance system. “I would eat a broom if there wasn’t more to come. The FDP is now working on implementing the Sweden model,” warns Judith Kerschbaumer, head of social policy at Verdi. It is wrong that debts are taken out for the capital stock. “Financing on credit doesn’t work at all,” says Kerschbaumer to “Capital”.
The SPD absolutely wants to prevent the pay-as-you-go procedure from being pushed back and not just supplemented – probably also out of consideration for the unions. They warn: Going public means taking the risks of the markets into social security. The Greens, the Hessian Ministry of Finance and a broad alliance of consumer associations are again proposing to integrate capital cover into private old-age provision. In this variant, employees would have to pay part of their gross wages into a state fund in addition to their statutory pension contributions.
It is now up to a social democrat: Federal Labor Minister Hubertus Heil is responsible for the pension and has to implement the plans on paper and enact them in law. This should be done in the first half of 2023. This is intended to create the institutional prerequisites for setting up the fund. On the basis of the legislative process, “a template for unblocking the funds for the loan will be submitted” to the budget committee of the Bundestag. However, it is not yet clear when the loan will have to be repaid.
This article first appeared on Capital.de.
