On Monday, the German Federal Bank recommended that Germany increase retirement age from 65 to 69.
As Germans are living longer, having fewer children, and see more and more baby boomers retire, the Bundesbank now argues that the current pension system is unsustainable and needs reform.
According to the bank’s new report, if employees work until age 69, retirees will receive 44 percent of their average salary. If the current system is maintained and workers retire at 65, before falling birth rates and thus fewer people paying into the system, retirees will receive just over 40 percent of their salaries — and bring into question the bank’s ability to actually pay out those pension claims.
The bank added that while working until near 70 may seem odd now, in the future a “longer working life will not be taboo.”
Still, the German federal government is not convinced. It has already committed to increasing the retirement age to 67 by the year 2030 — similar to the United States, where retirement age will increase to 67 by 2027 — and does not plan to change that anytime soon.
“There are always discussions and sometimes the Bundesbank is a part of these discussions,” Steffen Seibert, Chancellor Angela Merkel’s head spokesman said Monday. But, he added, “the government stands by retirement at 67.”
In the West, innovations in health and medicine, aging baby boomer populations, and suspicions of traditional welfarist models have made proposals like the Bundesbank’s increasingly common — particularly among conservative groups.
“We’ve known it for a long time: Social Security has a math problem,” the Heritage Foundation’s Romina Boccia said. “The safety net for our elders takes in too little money to pay for its long-term obligations. Last year, it saw nearly $860 billion go out the door to pay for benefits and administration. Its dedicated tax revenues covered only 91 percent of that amount.”
As with the Bundesbank, conservative groups like the Heritage Foundation recommend raising the retirement age to over 70 lest the U.S. Social Security program see only peril.
What they do not recommend, and what could allow for social security to remain solvent, is lifting the payroll tax cap. At present, the cap is at $110,100 — meaning that people who earn more than that per year do not pay more in payroll taxes, and that the taxation system is effectively regressive.
Next, read up on the millionaires’ tax recently proposed by Los Angeles as a way to help end homelessness.