The federal and state pension burden is increasing

D.he enormous additional expenditure in the Corona crisis is a burden on the public coffers – and there are also sharply increasing burdens from salaries and pensions for government employees. Regardless of the outcome of the current collective bargaining round for 2.4 million federal and municipal employees, the increasing number of age-related retirements of civil servants is a major contributor. As a new analysis by the employer-related Institute of the German Economy (IW) shows, the sum of the pension burdens for the federal and state governments has now reached a present value of more than 2 trillion euros.

The present value shows how much money one would have to put aside in an interest-bearing account in order to use it to service all future pension expenses; based on corresponding assumptions made by the public sector, the IW has assumed an interest rate of around 3 percent.

Since the federal states have a particularly large number of civil servants due to their responsibility for the police and schools, they account for a good 1.2 trillion euros of the total, as the analysis further shows. For the federal government, its assets statement at the end of 2019 showed pension obligations with a present value of 809 billion euros. According to IW, that is an increase of 88 percent within ten years.

There is a threat of conflicts in budgetary policy

Since budget policy – especially of the federal states – only made small provisions for this in the past economic upturn, there is now an ever more severe conflict with other tasks, the institute warns. “In view of the need to catch up in education, digitization and infrastructure as well as the current debt brake, financing the growing pension expenditure will be a difficult undertaking.” While the corona additional expenditure will drive the general government debt ratio from 60 to at least 80 percent of gross domestic product (GDP), the Pension obligations of another 60 percent of GDP.

Calculated per capita, the citizens of Berlin and Hamburg would have to pay the most into the account for their state officials: each around 20,000 euros, calculates the IW. On the other hand, the costs of the expected new collective bargaining agreement for federal and local government employees look rather modest: at most 7 billion euros per year, i.e. almost 90 euros per inhabitant.

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