FEELING THE COLD AND THE PINCH IN GERMANY

Braving the cold at a Christmas fair in Cologne.

My first visit to Germany was in December 1998. Last month, I returned for a more leisurely visit. During my one week in Cologne, I had the opportunity to talk to some senior citizens about how they viewed retirement. One can learn a lot from such exchanges with seniors from other countries. Hmm.. maybe it's time we had a World Seniors Summit, just like the World Economic Forum in Davos, Switzerland, but minus all the finger-pointing and blaming.

Christmas eve dinner

Over a Christmas eve dinner at his home, I asked Dr Erhard Schelzke, 73, how he views his retirement. A professor at one of the public universities until he retired some years ago, he says, "A lot depends on how well-prepared you are, how much you managed to save during your working years."

Dr Schelzke providing some Christmas cheer on his violin.

Dr Schelzke is enjoying his semi-retirement years as a part-time entrepreneur consultant at the university. When not at work, Dr Schelzke spends his time reading and playing his violin. The latter is a passion that has been with him since he was 10. He hopes to raise enough funds to start a violin school for children.

Unlike Dr Schelzke, Manfred Luer, 70, works six days a week running his family jewelry business together with his partner, Ursula, 66. Both have accepted their impending retirement, but are not looking forward to it. "The business has been such a big part of our lives. With the global economic downturn, it's getting harder for small businesses like ours to survive. But we will carry on as long as we can."

Manfred and Marcus Luer

Then there is 83-year old Marga Linden. She is seldom seen without her trusty bicycle, which takes her wherever she needs to go in the suburbs where she lives. "My knees are starting to act up," she complains. Life has been much quieter since her husband passed away in 1975. Not one to stay home and mope, she meets with her girl friends regularly, and does grocery shopping for those less mobile than she. She takes retirement in her stride, and is determined to remain physically and financially independent.

With long-standing low birth rates and increasing life expectancy, compounded by the high rate of unemployment in recent years, Germany's pension system is under much pressure. Simply put, there just aren't enough young working adults to contribute towards the old age pension system for the burgeoning number of workers who retire.

Some reforms introduced by Chancellor Angela Merkel to give the government more time to work out solutions include raising the retirement age from 65 to 67, and extending the minimum years of work service from 40 to 45 to be eligible for pension benefits. Not everyone is happy with these reforms.

In Malaysia, similar 'reforms' have been implemented. The retirement age for civil servants has gone up from 55 to 57, and the years of service from 25 to 30 to be eligible for pension benefits.

Here in Malaysia, workers earning less than RM3000 must contribute to SOCSO (Social Security Organization). Their employers also contribute to SOCSO. Benefits include coverage for work-related injuries and medical insurance. SOCSO contribution is optional for those earning more than RM3000, but the consent of the employer is required.

Those earning above RM2500 have to pay income tax and contribute to the Employees Provident Fund (EPF). Their employers also contribute to the fund. There is currently no mandatory contribution to medical insurance. Whether this will change in the near future is anyone's guess.

Compare this with workers in Germany who pay not only income tax, but also contribute to health insurance, long-term care insurance and unemployment insurance. Workers and their employers each pay equal amounts into the old-age pension system. This works out to about 19.9% of an employee's gross earnings.

The level of pension to which people are entitled is based on what they have earned over the whole of their working life and is currently at the level of about 68% of their last drawn salary. So the more a worker contributes during his working years, the more pension benefits he enjoys in his retirement.

Click here to find out the different approaches taken by other countries to deal with the pensions crisis. There might be lessons Malaysia can learn.