August 15, 2016 / 11:31 AM / 3 years ago

UPDATE 1-Germany should up retirement age to save pensions - Bundesbank

* Bank says retirement age should be raised to 69

* Currently 65, due to increase to 67 by 2030

* Government ‘stands by retirement at 67’ - spokesman

* Germany holds election in 2017

By Francesco Canepa

FRANKFURT, Aug 15 (Reuters) - Germany should consider raising the retirement age to 69 by 2060, from around 65 currently, or risk struggling to honour its pension commitments, the central bank said on Monday.

The state pension system is in good financial health currently but will come under pressure in coming decades as baby-boomers retire and there are fewer younger workers to replace them, the Bundesbank said in a report.

The retirement age for Germans is scheduled to rise gradually to 67 by 2030.

The Bundesbank estimates this increase will not be enough to allow the German government to keep state pensions at the level it targets - at least 43 percent of the average income, from the 2050s due to people living longer.

To avoid raising contributions too far or letting pension levels sink, the government should consider increasing the retirement age to 69 by 2060, the central bank said.

“Further changes are unavoidable to secure the financial sustainability (of the state pension system),” the Bundesbank said in its monthly report.

The proposal was unlikely to prove politically palatable before the 2017 election.

German government spokesman Steffen Seibert said: “This German government stands by retirement at 67. Retirement at 67 is a sensible and necessary measure given the demographic development in Germany. That’s why we will implement it as we agreed - step by step.”

Finance Minister Wolfgang Schaeuble was criticised by his Social Democrat coalition partners in April when he proposed linking the retirement age to life expectancy.

The Bundesbank’s calculations show an increased retirement age would allow the government to cope with lower-than-expected return on the money invested by the pension system - an implicit reference to the European Central Bank’s ultra-low interest rates.

The government expects a 4 percent annual return on investment, which compares to a yield of just 0.2 percent on its 20-year bond. (Additional reporting by Frank Siebelt in Frankfurt and Gernot Heller in Berlin; Editing by Janet Lawrence)

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