Pension Hike Under Fire

Nearly one in four Germans will benefit from a 1.1 percent pension raise starting July, but the hike means millions of working-age Germans will have to forego planned reductions in their monthly contributions to state-run pension funds.

The proposed hike from July 1 will allow older generations to share in Germany's recent economic upswing, the Ministry for Labor and Social Affairs said.

Government economists said the propose hike will cost 12 billion euros ($19 billion) between this summer and the end of 2012.

A minority in Merkel's own Christian Democratic Union (CDU) have loudly criticized the pension raise, charging that it was bulldozed through by Merkel's more leftist coalition partner, the Social Democrats.

Another raise of around 2 percent is expected next year.

"It's going to hit employment"

The pension rise has been attacked by employers in particular who say it violates restrictions on pension increases set out in a formula adopted under previous Chancellor Gerhard Schroeder. It was intended to ease the strain on Germany's social security system caused by its ageing population. Germany has one of the lowest birth rates in the world.

State pensions are funded by fixed contributions split between workers and employers.

Dieter Hundt, president of Germany's employers' federation (BDA), said it was wrong to break with the formula just because a general election was coming up in 2009.

"The consequence of this will be higher staffing costs for employers and less money in the pockets of workers," he said. "That's going to hit employment."

The pension rise means workers and employers must both shoulder a further 2.5 billion euros in costs in 2011, and 1.7 billion euros in 2012, the government said. The federal budget will be saddled with about an extra 2 billion euros in 2011.

The planned increases mean the contribution rate to statutory pension insurance will not be cut from 19.9 percent of gross wages until 2012, a year later than previously envisaged.

Government spokesman Ulrich Wilhelm said Tuesday cabinet had been unanimous that old-age pensioners should be given their deserved share of Germany's recent economic growth.

State pensions pegged to lifetime earnings are the main income of Germans over 65, though affluent people also have capital income or company pensions to draw on.

A poll for N24 television found 74 per cent of Germans approved the raise for pensioners, while 17 disapproved and believed younger Germans were being disadvantaged to improve the incomes of seniors.