Rising pension payments for Germany’s civil servants are set to pose a challenge to the country’s finances, according to a report by credit ratings agency Moody’s.
Teachers, who all, until recently, became civil servants upon completing the first few years of work, make up the largest proportion of Germany’s civil servants.
The country is due to experience a sharp increase in civil servant pension payments over the next ten years, as many of the additional teachers employed in the 1970s, as a consequence of the baby boom in the 1960s, will retire in the period up to 2025.
Most severely hit will be the regional governments, which employ most civil servants, the report, which was published this week, says.
Last year, pension payments at the regional level amounted to €26.4bn (0.9% of GDP or 7.0% of regional governments’ revenue), compared to the €15.3 billion at the federal level.
To limit the future fiscal burden arising from civil servant pensions, both federal and regional governments have undertaken a number of reforms, such as an increase in the retirement age.
But, the report says that due to the regions’ discretion over their personnel since the fiscal federalism reform in 2006, their application has differed between the federal state and the regions as well as among the regions.
While the country’s general pension system has undergone several reform steps to improve its sustainability only part of those reforms have so far also been applied to civil servant’s pensions in an equivalent way, the report argues.
In general, the slightly stronger legal protection of civil servants’ pension claims compared to non-civil servants’ pension claims “ limits the scope of potential reforms,” it adds.
