Intergenerational contract

The generation contract denotes an unspoken social consensus with regard to the system of pay-as-you-go pensions. Specifically, it means that the dependent generations pay the pensions of the generations that are no longer working with part of their work together with federal subsidies.

With the payment of pension contributions one does not accumulate capital from which one's own pension is later paid. Rather, when one is retired, one becomes a candidate for future payments. However, there is no parallelism between the contributions you have paid yourself and your later pension entitlement. The amount of the contributions depends on how much money the pension providers currently need. Currently the contribution rate for blue-collar and white-collar workers is 19.9% of gross wages.

Two problems affect the functioning of the intergenerational contract: On the one hand, when unemployment is high, the number of contributors and thus also the amount of contributions decreases. On the other hand, there is the demographic problem that older and older pensioners are faced with fewer and fewer young contributors.

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