The main points are
a. Max coverage changed to 67% of earnings instead of 70%,
staged in so that full reduction does not occur until
2030. I've been told that the 70% replacement of earnings
is a little misleading in that most Germans don't get
that much, just the highest earners? Johannes, can you
clarify?
b. Tax incentives to encourage the equivalent of IRAs, up
to 4% of gross earnings, staged over next six years.
c. Legalization of prostitution, Social Security pensions
extended to prostitutes. The article doesn't say when this
takes effect. Soon?
Anyway, here's the article.
-- John K. Taber
=================================================================== May 12, 2001 German Parliament Votes to Revamp Pension System By EDMUND L. ANDREWS RANKFURT, May 11 — After years of deadlock on the issue, Germany's Parliament passed a ground- breaking law today aimed at overhauling the country's extremely generous but financially strained retirement system.
The new law tries to wean Germans from their almost total reliance on government pension programs that currently pay people 70 percent of their working income once they retire. The system has been an anchor to Germans, and most other European countries have similar systems. But all of these systems have been headed toward collapse, because the pool of younger workers paying in is being swamped by the retirees collecting from it.
The new law provides incentives for Germans to contribute some of their own money to private retirement accounts, similar to those that Americans and British have used for years. A separate law, passed earlier this year, will slightly reduce the level of government-paid pensions over the next 30 years. Though the pension revisions are modest, they nonetheless represent a political breakthrough that strikes at a central pillar of Europe's postwar social welfare system.
In what may be another sign of changing times, the lower house of Parliament also took an initial step toward approving a law that would allow prostitutes to collect social security and retirement benefits as well as to sue customers who refuse to pay.
The pension measure is a major victory for Chancellor Gerhard Schröder, leader of the center-left Social Democratic Party, who had to navigate past objections from traditionalists within his own party and dogged opposition from the center- right opposition, led by the Christian Democratic Union.
This was Mr. Schröder's second big economic reform aimed at reducing the scope of German government. Last year, he managed to push through a sweeping measure to reduce individual and corporate taxes.
For the past three months, the Christian Democrats had managed to block pension reform in the lower house, because they controlled just enough state governments to deprive Mr. Schröder and his coalition partners in the Green Party of a majority in that chamber. But Mr. Schröder succeeded in breaking the logjam by offering extra money to state governments and persuading Christian Democrats in a handful of major states to defy their national party.
Though neither the tax cuts nor the pension reform amount to radical changes, they represent a retreat from the comprehensive social programs and high taxes that have been a hallmark of European government for decades.
Today's vote highlighted the continued weakness of the once mighty Christian Democrats, who had controlled the German government for 16 years under the former chancellor, Helmut Kohl. Mr. Kohl's party, defeated by the Social Democrats in 1996, remains bogged down in a scandal over illegal political contributions that Mr. Kohl apparently collected and distributed through much of his last decade in office.
Even more frustrating for the Christian Democrats is the fact that, five years ago, their own plan for pension reform was blocked by Social Democrats in almost exactly the same manner as Christian Democrats were attempting today. Mr. Schröder broke the blockade by offering to give states an extra one billion marks, or about $440 million, by readjusting the complex division of tax revenue between federal and state governments.
The pension changes approved today are cautious. Tax incentives will be phased in to encourage people to invest money in private retirement accounts, but they will not be allowed to put aside more than 4 percent of their gross pay and this will only take effect gradually over the next six years.
To win support from Germany's powerful labor unions, government officials had to water down their plan for benefit reductions. Retirees will eventually be entitled to 67 percent of their working income, compared with 70 percent today, but they will have ample time to plan ahead: the reduction will not take full effect until 2030.
Copyright 2001 The New York Times Company