International comparison
How Germany is doing when it comes to pension provision
According to studies, Germany ranks in the middle range when it comes to the quality of the pension system. Countries with particularly stable financing of pension provision have their own recipes.
The populations in the member countries of the Organization for Economic Co-operation and Development (OECD) are in the middle of an aging process: According to the organization’s forecast, by 2050 an average of 52 out of 100 people will be older than 65 years.
Currently there are 33 per 100 of retirement age, in 2000 it was only 22 out of 100, writes the OECD in its current report on the pension systems of its member countries.
Strong difference retirement salaries
The starting position of the pension systems differs significantly. An important variable is the so-called net replacement rate, i.e. what percentage of their last net income pensioners receive in retirement. At 53 percent, Germany is below average here. The net replacement rates are significantly higher in France or Italy, for example, at 70 or almost 80 percent.
But this is also because other countries put more tax money into statutory pensions. “Many countries – Austria, for example, but also Spain, France and Greece – definitely spend more on pensions,” said Monika Queisser, who heads the social policy department at the OECD in Paris, in WDR5 business magazine.
Contribution rates higher elsewhere
The contribution rates are also higher in other countries: in France it is 30 percent, in Italy even more than 30 percent of gross wages. In many southern European countries, the employer’s share of pension contributions is significantly higher than in Germany, where pensions are financed on a parity basis.
The pension contribution, which currently amounts to 18.6 percent of gross income, is shared “fifty, fifty” by employers and employees. Employers in Germany complain about the high additional wage costs at the location; At least when it comes to pension contributions, they still do well in an international comparison.
Low-income earners: relatively little pension
A shortcoming of the German system is the provision of pensioners who only had a low income. “In Germany they get much less than in most other OECD countries,” criticizes the OECD pension expert.
Denmark solves the problem with a tax-financed basic pension. In New Zealand there is a basic pension that redistributes the pension system from high earners to low earners. However, people in Germany whose pension is not enough to live on must apply for basic security.
Retirement age to Life expectancy couple?
An important factor for the financing of pension systems is of course the retirement age: currently in Germany it is just over 64 years, roughly in line with the OECD average; by the beginning of the 2030s it will have reached 67 years.
That’s how long people in the USA and Japan have to work. From the organization’s perspective, a solution could be to link retirement to life expectancy. After all, this is already regulated in nine member states, says the expert. Norway is currently considering doing the same.
Funded Pension as an important pillar
Countries that achieve better results with their pension systems rely more heavily on elements that can be expanded in the German model. The pay-as-you-go system – according to which the working population provides for people in retirement – is supplemented with a funded pillar. Countries like the Netherlands and Denmark do it this way, for example.
In the current pension comparison by the CFA Institute and the management consultancy Mercer, they end up in the top group. Germany is at least in the upper midfield here, with countries like France, Great Britain and Switzerland.
Bright spot in company pensions
The experts’ recommendation: Germany should supplement its pay-as-you-go system with a funded pension – and further expand the company pension system. Germany is already well positioned here in international comparison. At least half of the population receives part of their pension from an employer’s pension fund.
Queisser from the OECD also thinks collective solutions such as company pensions are a good idea: “If many people are together in a system and don’t have to deal with and negotiate with financial service providers individually, it’s cheaper and less complicated.”
However, the expert fears that it could be difficult to build up a funded pension in Germany – in a situation where the aging of society is becoming acute. Because that means: The state has to spend money twice: on current pensions and on savings contributions in order to build up the funded pension provision.
