Direct Request (CEACR) - adopted 2006, published 96th ILC session (2007)

The Committee notes the detailed statistics and explanations provided by the Government with regard to the methods of calculation and adjustment of the old‑age, invalidity and survivors’ pensions, which have been the subject of the Committee’s dialogue with the Government for a certain number of years.

Part II (Invalidity benefit) and Part VI (Survivors’ benefit) of the Convention. In its previous comments, the Committee asked the Government to show, by means of concrete examples, the impact on the calculation of the invalidity and survivors’ benefits of an intermittent career containing both missing and credited periods and to provide calculations of their replacement rate for a standard beneficiary whose career after the age of 17 included periods of education, self-employment or unemployment until age 30 when he started uninterrupted salaried employment for 15 years and became invalid at age 45. The Committee would once again ask the Government to provide this information, including examples of calculations for the same beneficiary who, before having a stable employment career at the age of 30, spent maximum allowed periods on unemployment benefits I and/or II.

Part III (Old-age benefit). In its previous conclusions, the Committee requested the Government to provide updated calculation of old-age pension to show that it reaches the replacement rate of 45 per cent prescribed by the Protocol for a man having 30 years of contributions or employment, a wife of pensionable age and no dependent children. The Government indicated that calculations made on this basis resulted in a replacement rate of 42.8 per cent of the reference salary in the old Länder and 42 per cent in the new Länder, whereas calculations based on 35 years of contributions gave the replacement rates of 49.9 per cent in the old Länder and 49 per cent in the new Länder. According to the Government, it would be extremely unrealistic to base the calculation of the pension’s replacement rate on an employment period of 30 years, since under the German pension law many additional periods were included in the insurance career of the person concerned and credited for pension purposes. In 2004, 79.9 per cent of the first-time male pension recipients had an insurance career of over 35 years. According to the detailed information provided by the Government, such additional periods comprise three main types of periods: (1) periods for which contributions for the person concerned are paid by the State or the insurance agency (e.g. periods of training, military or civilian service, child rearing, care provision, receipt of wage replacement benefits such as sickness, injury, unemployment benefits, etc.); (2) added periods for which no contribution is paid but which are nevertheless valuated and increase the pension (e.g. professional schooling, maternity protection), as well as “zero” added periods which do not increase pensions directly (e.g. unemployment); (3) credited periods (Berücksichtigunszeiten) which serve to close gaps in the insurance career caused by rearing children up to the age of 10. The Committee understands, from the explanations given in the report, that in the German pension system a standard beneficiary having completed the qualifying period of 30 years of employment referred to in Article 18(1)(a) of the Convention, would have in fact a longer insurance career extended by additional periods credited to him for military service, schooling, unemployment, etc., which would give an added value to his pension. The Committee further notes that, according to the statistics provided in the Government’s 35th report on the application of the European Code of Social Security (2005-06), in order to obtain an old-age pension at the level of 45 per cent of his previous earnings guaranteed by the Convention, the standard beneficiary should have an employment record of 32 years. It would therefore ask the Government to indicate in its next report what additional periods could normally be included in the insurance career of the standard beneficiary with the effect of increasing his pension by the same amount which would bring two additional years of regular employment. Please provide statistics on the percentage of the first-time male pension recipients with an insurance career of over 32 years.

The Committee also notes that the Act on need-oriented basic protection in old age and in the case of reduced earning capacity (Gesetz über eine bedarfsorientierte Grundsicherung im Alter und bei Erwerbsminderung – GsiG), which came into force on 1 January 2003 and was subsequently integrated in the SGBXII, was meant to combat poverty in old age. The basic need for livelihood is to be guaranteed for persons over 65 years of age who have withdrawn from working life for good and whose income is not sufficient to maintain their livelihood. It is not necessary to actually draw an old-age pension. Since October 2003, all pensioners are provided with targeted information regarding benefit entitlements under this Act by their pension insurance fund if their respective incomes do not exceed the monthly amount of 844 euros. The Committee would like the Government to indicate to what extend the dependent wife of pensionable age of the standard beneficiary could benefit from the basic protection in old age under this Act or under social assistance provisions, taking into account that the net monthly income of the couple will amount to 889.25 euros.

Part V (Standards to be complied with by periodical payments), Article 29. In its previous direct request, the Committee asked the Government to explain the practical effect of the new pension adjustment rules established by the Act to secure the sustainable financial basis of the statutory pension insurance (Pension Insurance Stability Act) (Gesetz zur Sicherung der gestzlichen Rentenversicherung – RV-Nachhaltigkeitsgesetz), which entered into force on 1 January 2005 and modified the formula for the adjustment of pensions by introducing a sustainability factor, through which the correlation between persons receiving benefits and persons in compulsorily insured employment is taken into account when pension adjustments are made. In reply, the Government indicates that the sustainability factor (Nachhaltigkeitsfaktor) was first calculated for the period from 1 July 2005 onwards at the rate of 0.9939, which mathematically would have meant a reduction of the current pension value by 0.61 per cent. The application of the so-called Riesterfaktor reflecting changes in the proportion of old-age provision would have led to a further reduction of the current pension value by 0.62 per cent. These reductions however were not implemented due to a legal safeguard clause precluding combined application of both factors resulting in a reduction of current pension value, which was therefore left unchanged. According to the report, such “moderation of pension adjustments necessary to stabilize the system” were to be implemented at a later stage after 2010.

The Committee understands that, be it not for the safeguard clause, under the present circumstances the new pension adjustment factors operate in such a way as to reduce the current pension value and that such “moderation” necessary to stabilize the system will be used to offset possible increases in the pension rate after 2010. It also notes that the rate of pension adjustments in 2004 and 2005 was zero and that over the five-year period (2000-05) growth in pensions (1.08) lagged behind the increase in consumer prices (1.61). In order to better assess the long-term effects of the new pension adjustment rules, the Committee would like the Government to explain, on the basis of existing actuarial studies, what stabilization results are expected to be achieved in the German pension system by moderating adjustment of pensions in the foreseeable future. Please continue to supply detailed statistics on the changes in pensions in comparison with the general level of earnings and the cost of living required by the report form under Article 29 of the Convention.

Finally, taking into account the highly complex technical nature of the questions involved and the high sensitivity of the results to the choice of the methodology used for calculating the level of benefits, as well as the need to coordinate the country’s obligations under ILO and European social security standards, the Committee wishes to draw the Government’s attention to the suggestion of seeking clarification of these issues through technical cooperation that it makes in the conclusions concerning the 35th report on the application by Germany of the European Code of Social Security.