The German government is planning to beef up funds for equity investments in the first pillar to €200bn until 2025, according to a report published by Handelsblatt newspaper.

The government will contribute to the first pillar equity fund, dubbed Generationenkapital or generational capital, which will turn the purely pay-as-you system into a partially capital-funded system, with €12bn instead of €10bn from 2024.

The sum will increase by 3% in each of the following years, to reach a total amount of €200bn by 2035, the report added.

Another €15bn in the hands of the government could further boost capital injections in the generational capital by 2028, according to Handelsblatt.

The Finance Ministry, which is spearheading efforts to reform the country’s pay-as-you system along with minister Christian Lindner, has agreed with the Federal Ministry of Labour and Social Affairs (BMAS) to increase the amount of funds for equity investments in the first pillar, but doubts remain within the ministry, according to reports.

The finance ministry declined to comment on whether the government plans to deploy more capital for the Generationenkapital fund from next year, saying that the draft law to reform the first pillar scheme is currently being put to the vote within the government.

The finance and the labour ministries are still working on a draft of the reform of the first pillar through the Rentenpaket II.

The upcoming pension package aims to set the level of pensions at 48% of the average earnings and to build up a supplementary generational capital, a spokesperson for the labour ministry said.

The government believes that the generational capital concept will help to contain the increase in terms of contributions, and the amount paid to support the first pillar that reached over €100bn of taxpayers’ money in 2022.

Different views remain

Member of parliament for the Green Party, Frank Bsirske, said that the plan to build a first pillar equity fund pension with “fantastic returns” is far from reality.

According to a study commissioned by the Greens for the research department of the German parliament, the equity pension concept (formerly known as Aktienrente) raises not only financial and state aid questions, but also constitutional questions.

Pension expert for the Greens, Markus Kurth, harshly criticised the finance ministry’s plans, questioning whether the equity fund in the first pillar can generate enough returns to pay out pensions.

The Social Democrats of the SPD party stand by the agreement signed with coalition partners to build a partially capital-funded system in the first pillar to reduce the burden on members contributing to their pensions.

“Of course, the generational capital must be done properly and reach a relevant volume,” said a member of parliament for the SPD Martin Rosemann.

Yasmin Fahimi, chair of the German Trade Union Confederation has also criticised the idea, saying that financial markets are very volatile, making it difficult to sign an intergenerational contract on pensions.

Pascal Kober, MP for the Free Democratic Party (FDP), that is strongly supporting the equity fund proposal, said instead that ”the plans to increase generational capital are positive and important news”, adding that the €12bn is only a start-up sum.

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