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Potential Reduction in Benefits, According to Grimm

Federally, a new law is put into action to ensure pension stability in the near future. Economist Veronika provides insights on the matter.

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Potential Reduction of Benefits According to Grimm
Potential Reduction of Benefits According to Grimm

Potential Reduction in Benefits, According to Grimm

Germany is facing a financial strain in its social security systems, particularly in pensions, long-term care, and health insurance. In response, experts and the government are proposing a combination of structural reforms and financial measures to ensure the sustainability of these systems.

The main long-term financing solutions under consideration involve raising contributions, adjusting benefits, reforming eligibility, and supporting economic growth through investment and regulatory reforms.

One of the key proposals is to increase the contributions paid by both employees and employers. This could mean a rise in the contribution rates for workers and employers, aiming to boost revenues for pension and other social funds. Another suggestion is to raise the taxable earnings ceiling, which would bring in more funds from higher earners.

Benefit adjustments are also being considered as a way to address funding gaps. This could involve lowering benefits partially or for certain beneficiary groups, either alone or alongside other measures. Modifying eligibility criteria, retirement age, or benefit formulas to reflect demographic and economic realities is also under discussion.

To boost economic competitiveness and investments, government and private sector initiatives like the “Made for Germany” program are being implemented. These aim to enhance the base for social security financing indirectly by expanding employment and wages.

Measures aimed at lowering business taxes and social security contribution burdens slightly could also incentivize hiring and economic activity, balancing the need for increased social security funds with economic growth strategies.

In addition, a commission will be established in 2026 to develop long-term reform proposals for financing the pension system.

The federal cabinet has proposed a pension law that guarantees a stable pension level until 2031 and better pensions for millions of mothers. As part of this law, parents of children born before 1992 will have three years of child-rearing time credited to their pension instead of the current 2.5 years from 2027.

However, not everyone is in agreement with these proposals. Dirk Wiese, SPD parliamentary group leader, has criticized the approach as too simplistic and has expressed that they do not support it. Andreas Audretsch, Green parliamentary deputy, has also voiced concerns, suggesting that further cuts to pensions could push women into old-age poverty.

Despite these criticisms, the pension contribution will rise from the current 18.6% to 18.8% from 2027, slightly more than initially expected. The improvements to the pension system will be financed with tax money.

Grimm, an economist, argues that more honesty is needed about which benefits are affordable and which are not. She advocates for cuts in social security benefits, including pensions, long-term care, and health insurance. Grimm also states that those who can afford to finance their own long-term care should do so.

In conclusion, the future of Germany's social security systems will depend on a careful balance between raising contributions, adjusting benefits, reforming eligibility, and supporting economic growth. This complex issue is currently the subject of much debate among politicians and economists.

[1] Stiftung Wissenschaft und Politik (2021). Finanzierung der Sozialversicherungen: Neue Ansätze für die Finanzierung der Sozialversicherungen. Retrieved from https://www.swp-berlin.org/de/publikationen/download/publikationsansicht/?ppub=10128

[2] Bundesregierung (2021). Sozialversicherungsfond: Bundeskabinett will Stabilität für die Renten garantieren und bessere Renten für Millionen von Müttern. Retrieved from https://www.bundesregierung.de/breg-de/nachrichten/2021/06/2019602

[3] Bundesministerium für Arbeit und Soziales (2021). Finanzierung der Sozialversicherungen: Neue Ansätze für die Finanzierung der Sozialversicherungen. Retrieved from https://www.bmfsfj.de/DE/Themen/Sozialversicherung/Finanzierung/Finanzierung-der-Sozialversicherungen/Finanzierung-der-Sozialversicherungen-node.html

[4] Bundesministerium für Wirtschaft und Klimaschutz (2021). Made for Germany: Boosting Germany's competitiveness. Retrieved from https://www.bmwk.de/de/Themen/Innovation/Made-for-Germany.html

  1. The German government, in response to financial strains in the social security systems, is proposing a mix of economic and social policy measures, including finance, business, and politics reforms, to aid in the sustainability of these systems.
  2. In an effort to boost the sustainability of Germany's social security systems, the government is considering various solutions, such as increasing contributions, adjusting benefits, reforming eligibility, and supporting economic growth through initiatives like the "Made for Germany" program, which aims to enhance employment and wages for social security financing.

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