The PSEC-Reform – Facing the consequences of demographic change
The fundamental priority of a welfare state is to maintain social justice and guarantee decent living conditions for its citizens. This duty affects the responsibility for a sustainable relationship between the generations of a nation. In Germany, this relationship is ruled by the “intergenerational contract“. This contract obliges younger generations to provide resources for the older generations in the form of pensions. The idea of redistributing prosperity between generations only works if the relation of younger and older people is in balance. However, the functionality of the redistribution system is currently in danger. By analysing Germany’s demographic development, it is conspicuous that the proportion/share of older people is increasing, while the birth rate decreases. Imbalance affects the prosperity and society structures. While contributions for future employes are growing, the level of pensions will become less. The time for solutions is already overdue, but how could a society handle future problems?
The PSEC-Reform is a policy to bring back stability and justice into Germany´s intergenerational contract. By connecting the technocratic system changes with the demand for more considerate thinking in society, PSEC shows up a way to solve future challenges together.
To prevent employees’ contributions beyond a level of 25 or 26% of their income, we analysed how human resources could be used appropriately in future. By a steadily increasing life expectancy and more flexible workers, we calculated the effects of higher retirement age. A longer employment/occupation relieves workers incomes at about 5% on average, while the level of pensions remains constant. Additional to this, we included a higher sustainability factor from the pension formula, which considers the relationship between payers and gainers. By raising this factor, the smaller group of payers becomes less burdened. The modification of a few scrubs of the pension system produces a sustainable redistribution of consequences and keeps pensions and contribution rates at an adequate level.
By considering the distribution of resources between generations, it is eye-catching, that childless people profit more from the pension system instead of those who have children. Due to not existing opportunity costs for children, childless people have better income opportunities and the possibility to gain higher pensions. However, it cannot be acceptable that a system depending on future generations disadvantages its most essential part, the families. By taxing the income of childless people with a small tax rate of 1,78 %, the money could be used to stabilise families and to prevent pensioners from poverty by the financial support of those who depend on a security provision.
The PSEC-Reform focuses on creating a fair redistribution due to the consequences of demographic change. However, the resulting problems cannot be solved without deprivations; some groups have to give. The most crucial part of reforming is to search the dialogue, especially between today´s generations, to win understanding instead of conflicts. The future can only be saved by working together.