BERLIN The German coalition government has stepped up moves to modernize the nation's economy by unveiling plans to revamp the creaking pension system just three months after pushing through Parliament a far-reaching tax reform package.
Unveiling the social democratic-led government's pension reform planned in Berlin on Tuesday, Labor Minister Walter Riester described the changes as a "great innovation" and said they would introduce clarity and transparency into the nation's retirement system.
Riester said the pension reform plan represented the next major step in the government's plans for economic modernization following changes to the tax system and steps to streamline public finances.
The reform plan is aimed at easing the pressure on the public pension system and bolstering the provision of private pensions.
In addition to cutting state pensions from 70 percent of average salaries to 64 percent over the next 30 years, the government is also proposing to encourage people to take out private pensions by offering tax breaks totaling 20 billion marks ($9 billion).
A gaping 30 billion marks hole has already emerged in Germany's pension budget with the "graying" of the German population threatened to result in an explosion of pension costs.
By 2030 the percentage of Germany's working population aged 65 and above is forecast to leap from 24.4 at present to over 35 percent.
Apart from demographic changes, revamping the nation's pay-as-you-go pension scheme has been given an added sense of urgency by the need to extend the social security system over the past decade to take into Eastern Germany.
But considering the enormous political sensitivities to changes to the welfare system, the government needs to win the support of business, unions and the conservative-led opposition to reform the pension scheme which dates back to the rule of Germany's so-called iron Chancellor Otto von Bismarck during the late 19th century.
As a measure of the battle ahead facing Berlin as it attempts to introduce the changes, the nation's Trade Union Movement responded to proposed reforms by demanding further changes and confirming that it intends to go ahead with protests in October against the reforms.
Speaking after Riester had outlined his reforms, the deputy leader of Germany's Trade Union Umbrella Organization (DGB), Ursula Engelen- Kefer described the push to encourage private pensions as "an erosion of the priorities behind financing the provision for old age".
But with Germany having the highest labor costs in the world, business has indicated that it believes that the reform plan is not far-reaching enough.
The push for pension reform also comes at a time when rising energy prices put the government under pressure to pull back from its so-called eco-tax which is designed to offset non-labor costs with rises in fuel tax.
But in releasing the reforms, riester hit back at critics saying that "everyone was a winner" from the changes, including retirees as well families with children, adding that the proposals went further than merely repairing the system.
With talks between the government and the opposition on pension reform having broken down three months ago, Riester called on the Christian democrat-led opposition to hold fresh talks with the government this week to reach an agreement on the plan ahead of its introduction into Parliament in November.
"The opposition is invited to work together on these reforms," said Riester.
(DPA)