NCPA - National Center for Policy Analysis

Germany Faces Social Benefit Crisis

June 4, 1997

The U.S. isn't the only country on earth where its younger generation realizes it will not receive the social benefits its parents did -- but will be stuck with paying the government bills run up by the seniors. Germany is another such country.

  • German officials say the old left versus right controversies are giving way to a new division -- that between the young and the old.
  • Just as with the U.S. Social Security system, pensions for Germany's old folks are paid for by younger workers -- and the young are coming to believe their parents' generation is exploiting them.
  • By 2030, more than one-third of the German population will be over 60 years old.
  • To cope with the situation, a law was passed last year to raise the retirement age for men from 63 to 65 years, while the retirement age for women went from 60 to 65.

German officials also want to reduce pensions worth 70 percent of salaries workers earned in their last few years of work to 64 percent -- a proposal which has brought howls of protest.

Longer life expectancies and a birth rate which has fallen to only 1.6 children in the median family combine to exacerbate the public pension funding problems.

  • Typically, Germans are obliged to contribute one-fifth of their gross salaries to the state pension fund, with the employer matching one-half of the employees' contributions.
  • In Germany, 15.3 percent of the population is 65 or older, and the number of retirees on pensions grew by 1.2 million between 1993 and 1995 -- to some 16.8 million, more than one-fifth of the population.
  • Government policies meant to cement the unity of the two Germanys increased eastern German pension levels to 82 percent of the western average, of about $1,200 a month.
  • The total amount paid out in state pensions in 1996 was about $180 billion -- of which one-fifth came from government subsidies.

As a result, many young Germans have come to the same conclusion as their American counterparts: we have to do something for ourselves, because the government won't do it for us.

Source: Alan Cowell, "It's Young vs. Old in Germany as the Welfare State Fades," New York Times, June 4, 1997.


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