Imagine you go to your trusted bank advisor and apply for a loan, say for £1,000. When the banker asks you what you need the £1,000 for, you say that you want to buy shares. You expect to earn eight per cent on the stock market within a year, turning the €1,000 into €1,080, according to your business plan. With the €80 profit, you can easily cover the loan interest of 4%, in this example €40. You want to use the remaining €40 profit to support your grandparents.
Do you think you will be granted the loan? The bank advisor will probably ask you what you will do if you have purchased shares whose market price falls. Not only will there be no return, but part of the capital invested may even be lost, making it impossible to repay the loan in full. You may only be granted the loan if you provide a guarantor.
The German government is currently following this principle. Except that we are not talking about €1,000, but €200 billion by 2035. The first tranche of €12 billion is to be paid in 2024 – financed by loans, of course. The finance minister is hoping for an annual profit, as Germany only has to pay a good 2% interest rate given its credit rating.
The whole thing is being sold to citizens as Pension Package II, share-based pensions or even „generational capital“. But it is nothing more than generational debt. Because the shares are being bought on credit. The risk is borne by the guarantors, i.e. the citizens – in other words, all of us. And in practice, it is not quite as simple as in our example. Because the equation
Share return – interest earned = profit
does not quite work in practice. Because managing an equity fund worth up to €200 billion requires staff. A lot of staff, to be precise. In addition, the profits are subject to tax. Only what remains after costs and taxes have been deducted can be used to finance pensions.
The approach of generating additional revenue for the pension fund makes perfect sense. Without additional revenue, extremely painful cuts are inevitable: a further increase in the retirement age (currently 67), lower pensions (currently 48%) or higher contributions (currently 18.6%) for the working population. Mathematics can only be outwitted in the short term, even with sleight of hand. The contribution rate for employees will rise to 22.31% within the next 10 years anyway. At least for those who are still working then.
The idea of a capital stock is certainly worth considering. If, for example, civil servants were required to pay pension contributions into the statutory pension insurance scheme and this money were transferred to a capital stock on a monthly basis, this would effectively create a funded component for financing pensions. And not on credit.
Further sources:
https://www.br.de/nachrichten/wirtschaft/renten-plaene-der-bundesregierung-keine-kuerzungen,U68toxm
