Germany breaks taboo to defuse its pensions timebomb

A much-trimmed blueprint for the overhaul of Germany's stretched state pension system was passed by the lower house of parliament yesterday.

A much-trimmed blueprint for the overhaul of Germany's stretched state pension system was passed by the lower house of parliament yesterday.

Hailed by the government as "the greatest social reform since the war", the Bill breaks a taboo by cutting benefits and encouraging workers to make up the difference through private pensions. The changes have become necessary because individual as well as state contributions were heading for an explosion.

Under the new system, state pensions will gradually fall to 67 per cent of final salary from the current 70 per cent over the next 30 years. Though that will still leave German senior citizens the envy of the world, in a country that has taken index-linked pensions for granted, the small cut has provoked deep anxiety.

According to a poll conducted yesterday, 77 per cent of Germans feared that their pensions were unsafe.

Unlike almost everywhere in the industrial world, Germans have had no need for private or company pensions, so generously has the state treated them until now. Few Germans have bothered to save forretirement, even though the state pension is taxed.

But the population is shrinking and ageing. Over the next decades, there will be fewer workers to pay for an ever- larger number of the idle rich.

The need for reform has been recognised for decades, but previous attempts at reform were scuppered by powerful lobbies. Chancellor Gerhard Schröder's government has also been forced to rein in its early ambition, after vehement protests from trade unions.

Now it is the opposition's turn to force through further amendments before it allows the Bill's passage through the upper house, the Bundesrat. It faces further tinkering before becoming law after a vote expected on 16 February.

But modest as the reform may be, German business is generally relieved that the government is at last pruning a little bit of the bloated wage bill.

Yesterday's debate was poisoned by a dispute over an opposition poster depicting the Chancellor as a criminal guilty of "pension fraud". The leader of the centre-right Christian Democrats, Angela Merkel, stopped short of apologising outright for the poster, which was scrapped on Wednesday, the day after it was unveiled.

"We didn't want to criminalise the Chancellor, but in effect that happened," Ms Merkel said. "I regret that it could have been understood that way."

Ms Merkel, who broadly favours liberal reforms, called the end result of much haggling a "bureaucratic monster".