Germany maps out clear vision on ageing population as Hong Kong struggles
While Hong Kong struggles to come up with a solution to cope with an ageing population, Germany is mapping out a clear vision for the future
Brigitte Dersch retired from her engineering job five years ago and, at the age of 70, she says she has little to fear from the future. She enjoys dancing with her friends in the studio of a "creative home" that is funded by the German government to encourage more interaction between the generations.
She lives off a monthly state pension of about €1,200 (HK$12,100) and enjoys socialising at the home while living independently. As well as providing good exercise, it also gives her the chance to do volunteer work, performing at homes for the elderly and sending a positive message to other retirees that elderly people can still be active.
"I enjoy getting an emotional response from the audience and making them happy," she said.
Dersch is enjoying a lifestyle many Hongkongers of her age would envy, spending time with her children and grandchildren in her Berlin neighbourhood. But her generation and the generations to follow are causing a headache for Germany's policymakers - much as Hong Kong's ageing population is worrying its city's government.
But while Hong Kong struggles to come up with a coherent solution to its population worries, Europe's largest economy is setting out a comprehensive plan to cope with a future in which a diminishing pool of workers is supporting a growing number of retirees.
In an attempt to boost the birth rate, parents are being offered subsidised leave - 12 months for a mother, 14 months for the father, available any time after the child's first birthday. They receive 60 per cent of their monthly salary, capped at €1,800.
To boost women's participation in the workforce, all parents will be offered a childcare place for kindergarten children from August. The government hopes the proportion of working-age women taking on a job will be 77 per cent by 2040, up from 70 per cent in 2010.
And developers are being offered subsidies to make homes more suitable for elderly tenants.
"Our population is shrinking, ageing and becoming more diverse. The question is not whether but how things will change and what we will make of it. What do these trends mean for each of us individually and for our country as a whole?" says Germany's Federal Ministry of the Interior.
A nationwide public awareness campaign kicked off last month - although some have interpreted it as an attempt to win votes for the ruling coalition ahead of September's federal elections - and the next step will be to come up with yet more concrete measures. Nine working groups, with memberships drawn from social groups, academics and the public, are expected to generate more policies after a summit in May.
On the face of it, Germany's demographic challenges are not as deep as Hong Kong, where women live longer than anywhere else in the world - 86.7 years on average, four years longer than German women. For men, life expectancy is 80.5 years in Hong Kong, against 78 in Germany.
The city's birth rate is also lower, at 1.2 children per woman, against 1.4 in Germany. And while Hong Kong has no set retirement age, most employers expect workers to retire at 55 or 60. In Germany the retirement age is increasing, from 65 now to 67 in 2030.
What worries the German government is that the proportion of retirees in its population is projected to grow from 21 per cent now to almost 30 per cent in 2030. By that time, there will be just 2 working people to support each retiree, a proportion that will fall further, to 1.8, by 2040.
In Hong Kong, 14 per cent of the population is aged 65 or over, with the figure expected to increase to 30 per cent by 2040, a decade after Germany. By that time, there will be 2.2 workers per retiree, down from 5.3 today.
One cause for optimism in Germany is a deep-rooted mandatory social security system with roots that date back 130 years to the rule of Otto von Bismarck. It means support for retired people comes from what they have contributed during their working lives. It's enough to provide a monthly pension and health insurance that covers long-term illness.
For Hans Michael Lauer, a 68-year-old handcrafter who retired early at 60, that means his diabetes medication, check-ups every three months and any other treatment he needs cost just €25 of his €1,250 monthly pension. He volunteers as an actor at another creative home in Berlin, taking part in role-playing and performances with children.
"I'm having fun. I have no wish [for more assistance] and want to be left alone by politics," Lauer said as he was asked what more he would want from the government.
This comes at a price, of course. Workers pay about 9 per cent of their monthly salary towards their pension, a figure matched by the employer. Overall, Germans pay 20 per cent of their salary to cover social security, which will increase to 22 per cent by 2029.
Despite the impact of the economic crisis in Europe, the federal government's pension scheme remains solid. Its liquidity reserve stood at a record €29 billion in December and had a surplus of €4 billion for the year.
By contrast, Hongkongers rely on the much-maligned Mandatory Provident Fund, to which workers contribute up to 5 per cent of their wages, which the employer matches. But a combination of inflation and high management fees mean it's unlikely to provide enough for a stable retirement.
But Germany's government is not optimistic that its budget will continue to provide for pensioners as people live longer. Markus Sailer, an economist with German Federal Pension Insurance, a government agency, says the pension system needs to be reformed to survive.
"What worries me in terms of consequences is the unforeseen increase in longevity," Sailer said. "The surprise increase in longevity is not absorbed in the calculation of nearly all pension systems. That's why we need a strategy."
The federal government is now considering incentives to encourage workers to move from the public pension and healthcare schemes to private ones in order to sustain a balanced budget.
It also plans to increase the monthly contributions and to widen the scope of health insurance to cover dementia.
The existing social security system has been criticised for partially exempting the wealthy through a cap on the level of income on which pension contributions are made.
There are similar exemptions for self-employed workers, while professionals like architects and lawyers have their own private schemes. As much as one-fifth of the total workforce does not have to pay in to the system.
There is also a discrepancy between the former West and East Germany. People living in the latter receive lower pensions, even though the cost of living is catching up fast.
But despite its careful, gradual approach to changing retirement provisions, including raising the pension age by a month or two per year, the government's efforts have run into opposition from unions.
Frank Zach, of the German Confederation of Trade Unions, said the nation should not encourage workers to shift to private insurance companies.
"The public system must be the basis. It has survived many interruptions. It is more stable," he said.
He said many labourers in industries such as construction and shipping, could not find jobs in their old age. That would mean they had to retire early and risk draining their savings before pensions kicked in.
"The government should require the rich to contribute to the public scheme … but there's great opposition from private insurers. They don't want to lose customers," he said.
The unions are supported by lawmakers from the Left party, who sit on the parliamentary committee drawing up laws to deal with the ageing problem, posing a challenge to the government's reform effort.
But the committee's chairwoman, Sibylle Laurischk, from the liberal Free Democratic Party, the junior partner in Germany's ruling coalition, brushed aside the question of whether partisan differences were delaying reform.
"We all know the changes [in demographics] are a matter of fact. We have clear agreement within this committee. That's why it is important to find solutions," she said.
One way forward, she suggested, was to attract more skilled workers and help them integrate into society.
"For years, we have denied that we are an immigration country. We have to change that thinking now," she said, pointing out that some hospitals in the country lack even a single German nurse.
But integration isn't easy.
"It was hard [for me] to integrate [into society], regardless of whether I was at work, in the street or in school," says 57-year-old Iraqi artist Younis Arrawy as he recalled arriving in Germany from Baghdad in 1981. He eventually found work teaching in a university. Nevertheless, he identifies himself as a German: "I live in Germany and I paint in a German way."
The German government plans to absorb between 400,000 and 800,000 skilled workers by 2025 and the foreign ministry has set up pilot schemes in three non-EU countries, Indonesia, India and Vietnam, to attract medics, IT specialists, natural scientists and technicians.
"Demographic change affects all societies. If we succeed, we can market [our solutions and innovations] to other countries," said Jorg Bentmann, a director-general of the Federal Ministry of the Interior.
While the government attempts to turn the problem of an ageing population into an opportunity, experienced journalist and commentator Bjorn Schwentker warned of a big challenge ahead.
He said the government had been prevented from conducting a comprehensive census since the 1980s due to people's concern about their privacy, which would affect the reliability of the government's projections.
"I sometimes think that one should drop the issue altogether and get back to the policies," he said. "There's an election this year and [the campaign] is all about the government."
And, in a comment that could as easily apply in Hong Kong as in Berlin, he adds: "At the end, it's not a problem of demographic change but our ability to adjust."
THE WAY FORWARD IN GERMANY
- Increasing the retirement age to 67 by 2030
- Offering subsidies for parents who stay home with their infant children
- Giving parents the right to access childcare places
- Increasing social security contributions from 20 per cent to 22 per cent of salaries by 2029
- Targeting skilled immigrants including medical workers, mathematicians, IT specialists, natural scientists and technicians, and helping them integrate into society
- Offering funding for "creative homes/centres", where elderly people are encouraged to interact with younger generations
- Subsiding developers who make better homes for the elderly and forcing them to build user-friendly homes for the aged