Explaining Grundrente

Over the next year, you will hear the German term 'Grundrente' a good bit.....which translates over to 'basic income' or 'basic pension'.

So lets explain landscape of pensions in Germany.  There are various groups of Germans who enter the work force, and advance on different paths....to reach a retirement age (now set to 67).  They contribute x-amount into the pension plan and they will get x-amount out at 67.

Well....some folks, with very limited education and no skillcraft certification (no Abi).....are on the path for minimum wage for almost their entire life.  It's enough to live off of, but little else.  So here's the shocker, at age 67.....that pension likely rests in the 550 to 650 Euro a month range.  Enough to live off?  No. If your house is paid for, and no real bills at 67.....you can generally survive with around 1,100 Euro or more.  If you really stretched your money and lived in a marginal way....maybe in the 850 Euro range. 

In plain words, there's a group retiring each year and they can't survive off the pension they earned.  Four things can occur at this point: (1) you take up a part-time job in the 450 Euro range each month (mini-job status), (2) you convince some kid of yours to take you in, (3) you apply to the government for social help (welfare), or (4) you attempt to live off the marginal pension and not ask for help. 

Who do you blame for arriving at this point?  Well, in the 1980s and 1990s....the government should have put enormous pressure on young people to wrap up their job certification, and progress a step or two ahead.  This pressure existing today?  No, in fact, there are hundreds of thousands of young people in their 20s today....without the skillcraft certification and they will reach 67 in four decades....to be on welfare in retirement.

The Merkel coalition government has established a working group.  They want to create an analytical program where you will be given a 'good' basic retirement, even if you haven't earned it. 

Requiring tax money?  Yes.  How much?  It's an unknown factor at this point, but you can figure it's going to be a minimum of one billion Euro a year.  The suggestion by journalists (based on info by politicians)....there's around 3-million Germans who need help (some more than others).

The max that we might be talking about?  450 Euro dumped into a pot to help 'Hans' reach some logical point of correct pension. 

Will this anger some people?  Yes.  But data from polling shows that 80-plus-percent of Germans think something has to be done.  You can either pay them the extra 450 Euro up front, or pay them via welfare....it's still taxation money no matter how you look at it. 

The earliest that you might see this worked out?  There's some talk that this committee might require a year to figure out the basic level, and the various ways to test the situation.  So I wouldn't go and expect this to happen until spring of 2021.