On the German pension system

Does a blackhole in the pension system explain why Germany is desperate to attract foreign workers?

Have you ever wondered what you are doing in Germany? Where you fit into this well-oiled industrial machine? Well I’ll tell you. You are here to plug a massive gap in the country’s pension system.

Every party in Germany favours some form of skilled labour migration (yes, even the AfD) because they know that without well-paid foreigners contributing to their fragile pension scheme the whole thing will collapse.

German state pensions are based on a system whereby those still working pay the pensions of those who’ve crossed over into the third phase. The more you paid in, the more you got out at the end, a principle known as Teilhabeäquivalenz.

That was a very manageable social contract as long as the baby boomers were still on company payrolls. But, as the plentiful post-war generation makes a permanent move onto the deck chairs of Mallorca, that deal is becoming ever harder to maintain.

Yes, politicians have seen this issue lumbering over the horizon for decades now. But the solution has been one chained to the logic of a four-year election cycle - hide the discrepancy in the tax system!

Reforms of the pension system in the 1990s and 2000s made it progressively easier to make up for the difference between incomings and outgoings by transferring money from the federal budget to fill the gap. This solution necessarily leads to higher taxes on the young, eroding the Generationsvertrag on which the system is based.