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Germany Eyes Tax Revenues To Fund Pension Reforms

by Ulrika Lomas, Tax-News.com, Brussels

14 January 2014


German Labor Minister Andrea Nahles has announced plans to finance envisaged improvements to pensions in Germany from 2018, via recourse to the use of additional tax revenues, to ensure that pension contributions do not have to rise as a result of the proposed changes.

During coalition negotiations between the Christian Democratic Union (CDU) and the Social Democrats (SPD), it was "clearly agreed" that the Government would have to use taxpayers' money to help finance the plans, Nahles emphasized, while conceding that the precise figure needed is not as yet known.

Experts have already warned that pension contributions will have to rise from 2018 to fund the Government's expensive pension reform plans, unless additional revenues flow from the Treasury, as by then, pension fund reserves will be depleted.

The pension contribution rate in Germany is currently 18.9 percent. Although the rate was due to be lowered in 2014, the Grand Coalition reneged on the plans, to ensure that more money flows to their agreed pension package. The Government intends to increase pensions for mothers with children born prior to 1992, to guarantee deduction-free pensions for those who have contributed for at least 45 years, and to improve disability pensions for individuals no longer able to work.

Labor Minister Nahles aims to submit a bill providing for the planned pension reforms by the end of January. It is expected that a rise in the level of tax revenues flowing to the fund will also be anchored in the draft legislation. Over EUR81bn (USD110.5bn) in taxpayers' money already flows to fund pension insurance in Germany.

TAGS: individuals | tax | pensions | insurance | legislation | tax rates | Germany

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