The German Pension System
Imperial Chancellor Otto von Bismarck passed the third and final social law of the German Empire in 1889. Due to the worsening situation for the working class and the increasing popularity of the Social Democrats, Bismarck introduced health insurance in 1883, accident insurance in 1884, and pension insurance on July 22, 1889. This pension insurance provides each pensioner with a fixed basic amount, which was regarded as a subsidy to finance life.
The statutory pension insurance changed in the course of various political approaches and the today known pay-as-you-go system, which is a core element of Bismarck's pension insurance, was in the meantime already supplemented by a funded system. This happened before World War II, was abolished again and reintroduced under the Nazi regime. Under the Nazis, however, the surpluses were specifically used to finance armaments. This scheme was dubbed Volksversicherung (national insurance) for the "Aryan" segments of the population.
In the postwar period, pensions were low in both the GDR and the young Federal Republic. In the Soviet occupation zone, a unified social insurance system was created, while the FRG adopted the organizational principles of the Weimar Republic. This was characterized, for example, by the separation of pension insurance for blue- and white-collar workers. The economic miracle ensured a rapidly growing economy and rising wages. The statutory pension insurance, which was not tied to the capital market, did not benefit from this.
The major pension reform in 1957 in the FRG changed the basic entitlement that a pension should provide. From now on, the pension should not be a subsidy to finance living expenses, but a wage replacement. A significant change was that there is now no basic amount that is paid out as a pension, but the pension contributions, measured against wages and insurance period for each insured person are different, as is the payment at retirement. This was the first time that the overall economic development was included as an aspect to be considered in the pension insurance. The promising reform brought both benefit expansions and benefit restrictions. One expansion, for example, was the equalization of men and women in survivors' pensions. In order to be able to serve the new areas of responsibility, contribution increases were steadily introduced and a health insurance contribution for pensioners was introduced in the 1980s.
In 1989, the FRG passed a new, major pension reform, which, due to the fall of the Berlin Wall, did not take effect until 1992 with the new Pension Reform Act and the introduction of the new SGB VI. Core elements of the 1992 Pension Reform Act were the linking of pension adjustments to net wage development and the raising of the age limit to 65. Over time, austerity measures were adopted by restricting benefits and raising the retirement age to 67. The Riester pension was introduced in 2002 as part of the third pillar of old-age provision in Germany.
The three pillars are 1. occupational pension provision, 2. compulsory public pension schemes (statutory pension insurance) and 3. private pension provision
The history of the German pension insurance system shows how difficult it is to find a suitable system that meets the demands of a changing society. With the introduction of a state-managed fund, the new government is advocating the expansion of the funded part of pension insurance. Whether this is a step forward will probably be judged by the generations after us.
Sources:
https://www.bpb.de/politik/innenpolitik/rentenpolitik/289604/geschichte-der-rentenversicherung
https://www.bpb.de/politik/innenpolitik/rentenpolitik/289633/die-entwicklung-bis-1945
https://www.bpb.de/politik/innenpolitik/rentenpolitik/289637/nachkriegsgeschichte-bis-1990
https://www.bpb.de/politik/innenpolitik/rentenpolitik/289643/von-1990-bis-heute
