Skyrocketing costs for public service spending
The German Civil Service Federation has reacted indignantly to a proposal suggesting a significant reduction in new civil servant appointments in key areas like police, justice, customs, and finance [1]. This proposal comes as the Provision Report of the Federal Ministry of the Interior predicts a rise in pension costs for federal civil servants and professional soldiers [2].
By 2060, the total provision expenses of the federal government are expected to rise to approximately 30.6 billion euros, representing a 54% increase [3]. This increase is primarily driven by demographic changes, notably the aging population and rising life expectancy, leading to a higher old-age dependency ratio [4].
The baby boomer generation retiring will increase the number of pension beneficiaries relative to contributors, while retirees drawing pensions for longer periods due to increased life expectancy further exacerbates the situation [4]. Additionally, Germany's pay-as-you-go pension system relies on current workers' contributions to pay retirees, which becomes unsustainable as the ratio of workers to retirees shrinks [4].
As of January 2024, the average monthly gross pension for federal civil servants and professional soldiers stands at 3,340 euros, with pensioners in the higher service receiving an average of 5,050 euros per month and those in the intermediate service receiving 3,410 euros [5]. Former civil servants in the lower and simple service receive an average monthly pension of 2,370 euros [5].
The provision expenses of the federal government for civil servants, judges, and soldiers will increase from 6.8 billion euros in 2023 to 7.8 billion euros by the end of 2023 [6]. The annual costs for these pensions are projected to reach 25.4 billion euros by 2060 [7].
By 2060, approximately 230,000 federal employees will be eligible for provision, up from the current 193,000 [8]. The provision ratio, which describes the relationship between the state's provision expenses for civil servants and public officials and the gross domestic product, is currently at 0.18% [9].
The provision-tax ratio, which describes the relationship between the federal government's provision expenses and tax revenues, is currently at 1.99% [10]. The projections indicate that the statutory pension insurance contribution rate in Germany must increase from 18.6% currently to 24.0% by 2060 to maintain the system, while pension replacement rates are expected to decline from about 48% to 42% of average income [1].
While the proposal to reduce new civil servant appointments may help mitigate the rising pension costs, it has sparked controversy and concerns about the impact on public services. The situation underscores the challenges faced by the German government in managing its pension system in the face of demographic changes and rising life expectancy.
[1] Source: German Civil Service Federation statement [2] Source: Provision Report of the Federal Ministry of the Interior [3] Source: Federal Ministry of Finance projections [4] Source: German Institute for Economic Research [5] Source: Federal Statistical Office data [6] Source: Federal Ministry of Finance budget documents [7] Source: Federal Ministry of Finance projections [8] Source: Federal Statistical Office data [9] Source: Federal Ministry of Finance data [10] Source: Federal Ministry of Finance data
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