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The Pension Problem (February 13, 1996)

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Chancellor [Konrad] Adenauer immediately understood that half of Schreiber’s plan, the part pertaining to the old-age pension, offered [him] a chance to bind elderly voters to the Union.* He also grasped the necessity of pay-as-you-go financing. But he did not warm to the idea of a youth pension. People would always have children, he thought, and besides, children don’t vote. Against Schreiber’s embittered resistance, he therefore only implemented the old-age pension half of the plan, including the mixed financing and insurance terminology – a textbook example of a democracy of complaisance. Schreiber’s congenial comrade-in-arms Oswald von Nell-Breuning, the nestor of Catholic social thought, had warned right from the start of the legislative proceedings in April 1956 of the catastrophic consequences that would result from the evisceration of Schreiber’s intergenerational contract. He said that this system could never achieve lasting stability, it would remain in limbo. His warnings went unheard, however.

Today we know that the two founders of the intergenerational contract were correct. Politics soon learned how to handle the instrument of contribution financing, which was advantageous from a financial-psychological standpoint, as it was excellent in undermining resistance to taxes. It could be expertly used to please a rapidly growing throng of senior citizens with ever longer life expectancies. In election years, pensions were sometimes even raised twice. Today the distribution of the available national income to the benefit of the elderly generation and at the cost of the two younger generations could not be any more asymmetric.

This is impressively confirmed by the explosion in poverty among families. In 1965 only one in seventy-five children under seven was temporarily or permanently dependent on welfare payments; in 1990 it was one in twelve, and today it is one in seven. Today, a four-person family with an average income already lives at the welfare level. Evidently, politics is no longer able to see that saving at the expense of the younger generation means overexploiting the future and that it makes more sense to train young people than to send the elderly to sunbathe in Mallorca. The demographic imbalance could hardly be more extreme. The average age in Germany in 2025 will be roughly forty-seven, as compared to today’s average of forty. And along with the growing number of senior citizens, policies are moving more and more towards an inescapable gerontocratic trap, as long-term care insurance demonstrates.

Over the course of forty years, the epochal idea of intergenerational solidarity has been turned around entirely. Today we are faced with a war of the generations: Gray Panthers** versus the payers of pension insurance contributions. Thus, it is the extensive social welfare system, of all things, that is utterly destroying social cohesion through its asymmetrical distribution of burdens and benefits and the growing percentage of elderly people. It results in a redistribution [of support] from young to old, from women to men, from families to the childless. Even the system’s principal proponents are remorsefully distancing themselves from it now: a few weeks ago, Dieter Schewe, who held a leading position in the Federal Ministry of Labor [Bundesministerium für Arbeit or BMA] in 1956 and who was responsible for the Grand Pension Reform [Grosse Rentenreform], determined that contrary to original intentions, the pension system by no means diminished the gap between rich and poor but in fact increased it considerably. At the time, he said, the mechanisms according to which the system would function had been misjudged.

Anyone who wants to change this can only do so by creating transparency and telling people how the system functions. One has to start with insurance terminology, which is the main reason why solidarity is often mistaken for returns on an investment. This nonsense must come to an end. The notion that quasi property right claims can be made on the basis of individual pension contributions is as widespread as it is wrong: through their pension contributions, senior citizens have only paid off their debt to their parents’ generation, nothing more.

* Reference to his party, the Christian Democratic Union (CDU) – eds.
** Reference to the Gray Panther Party [Die Grauen – Graue Panther], which existed from 1989 to 2008. Its main goal was to represent the interests of the elderly – eds.

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