Riester pension flop, Hartz 4 and child poverty – In what direction is Germany heading? What path is the EU on?

Dialogue forum on 4 April 2019

In Germany, there are more jobs today than ever before. But that is only one side of the coin. Old-age and child poverty are growing threats, and the gap between rich and poor is steadily widening. How does our society approach these issues? How effective are our measures to combat poverty?

Pension gap between men and women
Vaillant criticised the fact that today’s female pensioners receive roughly half the amount that their husbands do. She predicted that many women who are in the workforce today will have the same experience, because they are frequently in atypical work relationships, such as temporary jobs, and are earning less than men. “The gender gap for pensions is bigger in Germany than in any other EU country,” the journalist pointed out. She criticised politicians for paying too little attention to this problem, and instead lumbering the individual with responsibility for poverty. Society needed to find a solution for this, she said, to ensure that work by women was appreciated more in the future. A greater level of pension justice for women would create a more just society for all, thereby reducing poverty.

The pension system should be organised publicly and not privately, argues Habeck in a discussion with Hagelücken and Vaillant.

If you do not have enough money to live on, whether before or after you retire, the only option you have is to apply for welfare. The Hartz IV System that was introduced in the early noughties, with the twin principles of supporting and demanding, is seen by many politicians today as a thorn in the side. One of them is Robert Habeck, leader of the political party Alliance ‘90/The Greens. “There are a large number of aspects we need to discuss,” he said, “whether it is the level of protected assets, or the question of sanctions or freedom from sanctions.” He added that Hartz IV had deliberately created a low-wage sector that had reduced the wage levels. He explained one of the consequences: “Since then, apart from the last two years, there has been negative wage growth for the lowest 40% of incomes.” 

More additional income under Hartz IV
He argued that the low-wage sector needed to be drained to counter the loss of welfare. The best way to do this would be to leave people under Hartz IV more money from any additional income, instead of offsetting up to 90% of additional earnings against their social benefits. “Reducing this benefit withdrawal rate to 70% would cost the government perhaps between 20 and 30 billion euros in total, in other words roughly the same as abolishing the solidarity surcharge,” Habeck said. But it would be money well spent because it would reduce the gap between rich and poor. 

Gender equality has to be paid for by society, otherwise it is just equality among the ones with higher incomes, argues Vaillant. 

Habeck also believed that the attempt to prevent a slide into old-age poverty using the private Riester pension in addition to the public one had been a failure. Instead of this approach, he said the government should be organising fully funded pension provision, such as they have in Sweden. “A government fund into which everyone could make voluntary payments up to a specified amount, and which then invested the money sensibly, would achieve a broad participation in social welfare,” the Green politician maintained.

Because the statutory pension remains the key support for the majority of Germans, Vaillant argued in favour of remodelling the system along the lines of the Dutch model. This basically consists of a basic pension for all, with a supplementary company pension for employees, complemented by private pension plans. “The Dutch model illustrates that you can create a pension system that is truly poverty-proof,” she underlined. Habeck pointed out that the SPD and Greens had already made proposals oriented towards the Dutch model. He said that this was ultimately a discussion about basic income, a subject that was contentious even in his party.

United States of Europe needed
If national states fail to find an answer to the social question, he suggested Europe may yet succeed. But for this to happen, he believed individual states would need to hand over some of their powers, a suggestion that was meeting with stiff opposition. In the end, though, Habeck believes there will be no alternative. “We need to develop the good approaches in Europe,” he said, “not just in the fields of environment and agriculture as we have up to now, but also in the tax and social sectors.” He forecasts that if we stand still, things could fall apart. In a not too distant future, Habeck believed a federal European republic would result. Given transnational markets, companies and crises, he said you also needed transnational sovereignty rights. “I can easily imagine a United States of Europe,” he added. Yet at the same time, local identities and identification with a national state should not be ignored. 

Habeck sees the need for a public investment programme for Germany and Europe.

A further problem he mentioned was the unequal distribution of assets in Germany. There are repeatedly calls in this context for a redistribution. Habeck believed one reason for the unequal distribution lies in tax avoidance and tax evasion: “Digital corporations, hedge funds and investment brokers have developed such sophisticated models that politicians are unable to keep up with them,” he said. As a first step, he therefore suggested working to make tax-saving schemes transparent so that the government could respond accordingly. “According to EU estimates, German tax authorities lose some €160bn each year,” he explained. The Green party leader would not be opposed to a reintroduction of the wealth tax, but said he was fully aware of how difficult that would be to achieve. “Some people would fight it tooth and nail,” he conceded. As a former minister of the state of Schleswig-Holstein, he said he was aware that the art of politics always involved being prepared to compromise, and that for every argument there was a counterargument. “But at the present time, we sense a sea change occurring in politics, and that things are changing, so why not for the better?”

The last dialogue forum in the 2019 series will be held on 9 May 2019. The topic will be “Poor in the rich city – Living and surviving in Munich”. 

17 April 2019