Live Longer: Pay More


By Global Tax Weekly

Germany is in the grips of its economically destructive Grand Coalition agreement, which we have previously had cause to criticize, and which will prevent any business-friendly tax measures from being implemented for as long as it lasts, so we should at least give a subdued cheer for Finance Minister Schäuble’s determination to press ahead with an increase in the pension age, although the increase, from the current 65 (as almost everywhere) to 67 by (wait for it) 2029, is underwhelming. Life expectancy in Germany has risen by 10 years in the last 50 years to 80 years at present: that may not sound very much, but consider that post-retirement lifespan has therefore gone up from 5 years to 15, on average, while the retirement age has not changed. No wonder that the pension system is in a mess. By 2029, expectancy will have increased by a further three years (and post-retirement longevity to 18 years, an increase of 20 percent in the interim). Not surprisingly, therefore, and this is the bad news, Schäuble says that the pension contribution will have to rise to 22 percent by 2030. But even that (an increase in taxation, however it is labelled) will be wholly inadequate to fund the increased pension needs. Governments are in denial across the world on this trend, of course; it’s not just Germany. The Christian Democrats know very well that they ought to increase the retirement age much more rapidly, but hobbled as they are by their partners, they can’t. Germany’s businesses however know that the Coalition agreement simply amounts to a recipe for increased taxes. Why did Mrs Merkel do it? Just to stay in power? Because she hadn’t got the spine to run a minority government? There is no happy answer.





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