According to press reports, the German government has passed a resolution that pensions can never be cut in nominal terms.
If the pension formula says they should be cut, the cut is postponed until later, i.e. it is netted off with future pension increases. Not that noticeable pension increases are terribly likely anyway, unless inflation picks up sharply:
During 2004-2008 (i.e. for 5 years), pensions increased by 1.65 %. Not per year, in total: There was no increase at all in 2004-06, 0.54 % in 2007 and 1.1 % in 2008.
During the same time, consumer prices increased 10 %.
In other words:
It took only 5 years for purchasing power to be eroded by 8.3 %.
And don't forget: In recent years, the number of pensioners hasn't increased all that much. The aging process will accelerate dramatically after 2010.
So pensioners will be lucky if the purchasing power of their pensions doesn't drop by more than 1-2 % p.a. (I'm assuming inflation will be at least as high; if it isn't, financing constant nominal pensions will be rather difficult.)
It won't be funny for the pensioners, and it will lead to rapidly swelling numbers of welfare recipients. But nothing much can be done about it, unless Germans decide to have a lot more kids (and even if that ever happens, we need to wait for 20-25 years until those kids finally start working...).
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