The new government hopes to cure the Germans’ distaste for the stock market

T.HE 177-page German Social Democrats, Free DemocratsPDF) And Greens has huge plans to tackle climate change and Covid-19 and speed up digitization. A more modest promise to maintain on page 73 is to finance a small portion of its public-pension scheme by investing in stocks. The reaction in Germany ranged from panic to anger. “Is our pension safe?” Annoy a news outlet. Another asked: “Are politicians gambling on our pensions?”

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Due to the longevity of retirees, the German pension system, founded by Otto von Bismarck in 1889, is closing down. Workers and employers together pay a “pension tax” of about 18% of a worker’s total wages. That’s about 300bn ($ 340bn, or about 9% for financing) GDP) Is paid in pension every year. But the deficit means the government has had to subsidize the project, up from bn 100bn last year. The problem is getting worse as more baby-boomers retire.

To help solve the problem, liberal PDF The Swedish line has long supported plans to reshape the pension scheme. There is a standard pension in the Swedish system, where taxpayers contribute 16% of their total income and pay a supplementary “premium” pension, allowing 2.5% of each taxpayer’s income to be deposited in a stock fund of their choice. If the taxpayer decides against the active investment, the money will be deposited in a state fund, which has returned 9.9% annually since 2003.

The plan outlined in the German alliance agreement is much more modest. The government will funnel থেকে 10bn from its annual budget to a universally managed pension fund, which will be invested in the stock market, and which could generate attractive returns. Martin Warding of Ruhr University Bochum said the principal himself was responsible for about ten days’ pension payments, which led to a feasibility study. PDFProposal ahead of the election. But the team hopes it could be the first step toward a “stock-and-bond covered pension system.”

The response to the government’s plan tells you a lot about the attitude of the Germans towards the capital market Studies indicate that they are “market-shy” and overestimate the risk from investment. Only a quarter of households have their own stock In contrast, more than half of all American households do so, mostly in the form of 401 (k) retirement plans. This may partly reflect the differences between the tax systems of the two countries. For example, Germany imposes a high tax rate of 25% on long-term capital gains.

Then there are the German spots from the dot com era. Deutsche Telecom was listed on the stock exchange in 1996. The Germans marched in groups to the market; About 650,000 buyers of the newly issued stock were punters for the first time. Share prices skyrocketed before the spectacular collapse of the early 2000s. The effects are still lasting. Those who own shares of Deutsche Telekom or who remember the crash are less likely to have stocks like their children today, according to research published last year by the German Institute for Economic Research.DIW), A think-tank in Berlin. Even by 2020, the number of Germans investing in the stock market was still below the 2001 level.

The PDF It is hoped that the planned changes to the pension scheme will increase Germans’ familiarity with stock investing. “Swedes are not really known as turbo-capitalist stock gamblers,” jokes Johannes Vogel, the party’s expert on pension politics. Coalition governments also aim to make it easier for people to retire outside of their state pensions. The tax-free personal allowance on capital gains will increase from € 800 to € 1,000 a year in 2023, and the coalition hopes to launch an investigation into the creation of a Swedish-style public-investment fund.

These changes alone can do little to keep the pension system sustainable and better for pensioners. That, says Marcel Fratzscher DIW, The state will need to change the retirement age as well as labor-market reform. Nonetheless, he thinks, the plans provide a “glimmer of hope” that the government realizes, at the very least, that the system needs to be reformed. 3

This article is published in the Finance and Economics section of the print edition under the title “Hate Therapy”.

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