Grand Coalition negotiates ‘basic pension’ compromise

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The coalition has agreed on a compromise for the introduction of a basic pension. The compromise provides for an income test, but not the means test demanded by the CDU/CSU. In addition, economic stimulus measures are to be introduced.

After months of quarrels, the Grand Coalition has agreed on a basic pension for low-income pensioners. “This is a major breakthrough”, CDU leader Annegret Kramp-Karrenbauer said after the end of the coalition committee in the Chancellor’s Office. A “good solution” for the CDU/CSU.

“It is a milestone of social policy,” said provisional SPD leader Malu Dreyer. Instead of a means test, a comprehensive income test will instead be carried out. The CDU/CSU had long insisted on a means test, but this was vehemently rejected by the SPD.

The income comparison is to take place automatically between the pension insurance and the tax authorities, so that a personal check at the office is not necessary.

Basic pension law to be effective from 2021

With the basic pension, pensioners who have contributed for 35 years and whose contribution is less than 80 percent but more than 30 percent of the average income are to receive a supplement. An income allowance of 1250 euros for single people and 1950 euros for couples will apply. The basic pension should reach between 1.2 and 1.5 million people and will be effective from 2021. According to CSU leader Markus Söder, costs of 1 to 1.5 billion euros are expected.

Kramp-Karrenbauer said that anyone who has a need would get access to the new system. This need would be ensured by a comprehensive income audit. “It is a good, acceptable result,” she said. She said she would present the compromise to the CDU committees for decision this Monday. “I believe that we will push it through in the party,” the party leader commented. According to Kramp-Karrenbauer, this result also includes a temporary reduction of the unemployment insurance contribution of 2.5 percent by 0.1 percentage points.

Tax exemption for housing allowance

In addition to the basic pension, the coalition also wants to introduce a tax-exemption for the housing allowance worth around 80 million euros. This is to prevent that the improved pension will be eaten up by a reduction in the housing allowance.

The coalition wants to finance the measures through taxes and without increasing pension contributions. In addition, the federal subsidy for the general pension insurance will be increased, according to the published resolution of the CDU, CSU and SPD leaders on the basic pension compromise. As an important contribution to the financing of the measures, the financial transaction tax agreed in the coalition agreement will also be introduced.

More incentives for employer-financed pension schemes

Additionally, the coalition wants to further incentivise the additional employer-financed company pension scheme for low-income earners with a gross monthly income of up to 2200 euros. The subsidy amount for the company pension scheme is to be doubled from a maximum of 144 euros to 288 euros. In order to increase the attractiveness of employee share ownership, the CDU/CSU and SPD also want to raise the tax-free maximum amount in this area from 360 euros to 720 euros.

The coalition committee also agreed to set up an investment fund for future technologies of up to ten billion euros at the Kreditanstalt für Wiederaufbau*, especially in the areas of digitisation and climate technologies.

Brinkhaus: “Ambitious, but feasible”

CDU/CSU parliamentary group leader Ralph Brinkhaus said that the compromise on the basic pension showed that the coalition was capable of getting things done. He admitted that the parliamentary group would still have to be convinced. “This will not be easy, because it is a compromise”, Brinkhaus said.

The now agreed “comprehensive income test” as a prerequisite for the basic pension is a success of the last weeks. The necessary electronic data exchange between the tax authorities and the pension fund has yet to be established. This is ambitious until 2021, but feasible. Brinkhaus admitted that the dispute over the basic pension had put the coalition in a “very critical situation”. “I don’t want any more of these stress tests in this coalition.” The governing coalition must now “work through the remaining projectsin a sensible manner”.

The opposition criticised the agreement. Die Linke leader Dietmar Bartsch told the “Funke Mediengruppe” that it was cynical that there were lavish incentives for e-cars, “while the coalition is picking the wallets of pensioners who have paid into their pensions for decades”. The Greens declared that they wanted to lower the basic pension access hurdles in the legislative process. Parliamentrary group leader Katrin Göring-Eckardt said that 30 instead of 35 years in contribution and insurance periods and an unbureaucratic income check should be the standard. FDP leader Christian Lindner said that the CDU/CSU had let the SPD “pull a fast one on them”. “The basic pension has become an arbitrary pension: Tax money is being distributed where, in individual cases, there is no need at all”, the party leader said.

*The ‘Credit Institute for Reconstruction’ is a state-owned development bank.

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