Monika Schnitzer, chair of the Expert Council, has issued a warning to both the Union and the SPD, urging them not to fundamentally alter the proposals from the Old-Age Security Commission concerning pension reform during the parliamentary process. At the same time, she advises against repeating the mistakes made with the Riester pension scheme in the planned capital income system.
Speaking to the newspapers of Funke-Mediengruppe, Schnitzer strongly warned against dissecting the current package into separate parts. She cautioned that if legislators start adding exceptions and special requests everywhere, the typical outcome of German reforms will occur: little of the original intent will remain.
The economics expert views the commission’s recommendations as a “very important step.” Should the package be implemented, it would represent a crucial advancement. She stressed that the planned capital funding element is the central pillar of the reform, noting that Germany would finally be following a path that many other countries have successfully adopted. Referencing Sweden, Schnitzer stated, “We are late, but better late than never.”
The capital income scheme could particularly aid younger generations in building assets over decades and would relieve pressure on the public pension insurance in the long term. However, its concrete design is now paramount. She identified three critical prerequisites: low costs, wide diversification, and the absence of guarantees.
Schnitzer explicitly cautioned against repeating the errors of the Riester pension. She noted that guaranteeing participants would receive at least their contributed amounts “cost enormous returns.” She explained that due to constant restructuring and shifting assets, high costs and low profits were incurred. “Anyone who tries to insure against every fluctuation ultimately gives up a large part of the potential returns,” she observed. Therefore, the standard product of the capital system should be organized by the state and kept as low-cost as possible. While private providers could compete, the state must provide a favorable basic offer.
Schnitzer expressed skepticism regarding ideas of using the capital income system specifically to finance investments in Germany or Europe. These investments should be channeled into locations promising the best long-term returns. Instead of pursuing attractive investment conditions, she argued that better economic policy frameworks needed to be established.
Regarding the initial necessity of higher social contributions to build the capital income system, Schnitzer considers this manageable, although the total level of social contributions should not continually rise. Unlike consumption expenditures, these additional contributions would be invested over the long term. “The real danger lies in us heading toward ever-higher contribution rates without implementing reforms,” she concluded.
