One of the great myths of German politics went into retirement yesterday. The slogan "your pension is secure" had a long career, employed by generations of politicians to pacify the public and avoid the reality that is Germany's pension time bomb, writes Derek Scally in Berlin

The end came yesterday morning when a government commission presented 380 pages of proposals to save the state pension system, proposals that are as severe as the problems to be solved.

"You cannot reform away the future cost of an ageing society. You can only try to distribute the existing costs as fairly across the generations as possible," said Mr Bert Rürup, the economist who chaired the commission.

Germany's pensions bill is a staggering €77 billion annually out of the federal budget of 248 billion. The pensions bill will continue rising in the coming years to support the country's greying population. By 2035, demographic experts predict that every worker in Germany will be supporting a pensioner.

Things have never looked so grim for the "Generational Contract" devised by the former Chancellor Konrad Adenauer in the 1950s, where workers support today's pensioners on the understanding that they will be supported in their old age.

The "Generational Contract" is based on the assumption that there will be enough people paying into the system to pay the pensioners. Mr Adenauer brushed off the danger of that assumption at the time with the remark: "People have children in any case." Less than half a century on, German children are an increasingly rare breed. Some 15 per cent of women born in West Germany in 1950 are childless, rising to 31 per cent for women born in 1965. The German birth-rate is 1.3 children per woman.

Meanwhile, the number of people over 60 is likely to rise from 26 per cent of the population now to 38 per cent by 2050, according to the Organisation for Economic Co-operation and Development (OECD).

"The increase in life expectancy means that every second girl born today will live to at least 100," says Prof Ulrich Becker, a demographic expert at the Max Planck Institute for Demographic Research. "The German pension system was developed a century ago by Otto von Bismarck when life expectancy barely exceeded the pension age. Now contributions and benefits are no longer balanced."

The government hopes yesterday's proposals will restore some balance. The most controversial suggestions are plans to slow pension increases and to raise the official retirement age from 65 to 67 over the next three decades, as well as reducing the pension entitlements of those who retire early. The reality is that only a third of Germans in the 55-64 age bracket still work. The average retiring age in Germany is 60.2 while 30 years ago it was 64.7, something demographic experts see as a contradiction in terms.

"Today's 70-year-olds are physically and mentally as fit as the 65-year-olds of 30 years ago," says Prof Becker.

The government said the report contained "many sensible ideas" but Chancellor Gerhard Schröder has said it isn't a "Bible" and that he doesn't plan to implement the proposals in full.

The German leader faces a delicate balancing act: not to overburden future generations while maintaining pension payments for today's pensioners. One foot wrong could be political suicide.

"This generation of pensioners went through the second World War, survived the expulsions and food shortages and built up the affluence that we now enjoy. And now we are cutting back on them," said Ms Anneliese Wennerhold, manager of a retirement home in north Frankfurt.

This is the second time the Schröder government has tried to tackle pension reform. Two years ago, the government presented a plan to partly replace state pension with government-backed voluntary private plans. In that way, the government hoped to be able to scale back pension payments from today's 48 per cent of gross salary to less than 42 per cent by 2030. The government introduced subsidies and tax breaks worth nearly €9 billion to sweeten the deal but to no avail.

Only five million people have taken up the government's offer compared with the predicted figure of 30 million, according to a study by the Deutsche Bank-funded DIA Pensions Institute.

The difficult task facing the government is to convince people to lower their expectations of what the state can afford and to inform people better of the benefits of private pension plans.

"The expectations from state pensions can no longer be fulfilled," said Dr Axel Börsch-Supan, director of the Mannheim Research Institute for the Economics of Ageing and a member of the government's pensions commission. "A realistic pension level cannot be considerably higher than 50-55 per cent of income. Private pension plans will have to make up the rest."