BONN - German employers hope a new law aimed at reforming the national pension system will stabilize their ballooning contributions.
Last month, the Bundestag, or lower house of Parliament, approved cuts in pensions to reduce the financial burden on employers created by an aging population. The legislation, which does not need approval by the upper house, becomes effective in 1999.
The law effectively will cut average benefits to 64% of final salary by 2030 from the current level of 70% of final salary.
The law also will lower disability benefits, beginning in 2000. Previously, those who could not work in their occupations got pensions, but now, only those with general disability will get pensions.
But those payments, too, will be trimmed, depending on how many hours a day a person still is able to work.
"Without reform, average employer/employee contributions would reach 25.5% of wages by 2030," said Volker Hansen, a social insurance expert with the German Employers Association, which represents employers. "We hope now contributions stay under 22.3%," he added.
Current annual contributions -at a rate of 20.3% of wages, split evenly by the employer and employee - amount to 304.5 billion deutsche marks (about $174.2 billion).
Under the reforms, financially troubled companies no longer need to adjust pension funding every three years to fully track the rate of German inflation, which averages 3% annually. The law reduces the adjustments to a 1% increase annually for newly hired employees after 1999.
Crain News Service