It’s the big mystery: Germans diligently put money aside and are among the top Europeans in terms of their propensity to save, but their average financial assets are at best in the European midfield. Why isn’t the high propensity to save translated into significantly more wealth accumulation?
The answer is simple: On the one hand, Germans stick to putting large parts of their savings in bank accounts and savings accounts where high returns cannot be achieved. In current times of high inflation it is even worse, because in real terms there is less left over than was previously paid in.
On the other hand, Germans leave large parts of their savings to institutional providers such as life insurance companies. Comprehensive regulation also prevents them from investing in high-yield asset classes. Instead, investments in government bonds are in the foreground here, the share ratio is negligible.
Deposits and life insurance as the two main forms of investment in Germany differ significantly from those in other European countries such as Sweden or the Netherlands. In these countries, investments in equities are much more pronounced. Investments in infrastructure and holdings also play a greater role.
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As a result, people there achieve higher asset growth despite lower savings rates than in Germany. The people there make more out of less. To put it mildly, people in Germany create their wealth with their hands, while people in these other countries also put their capital to work for them.
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Ludwig Erhard once described the great model of the social market economy as “prosperity for all”. The demand based on this to create property is a central principle of the Federal Republic and is reflected in many places, interestingly for example in the constitution of the state of Berlin in the promotion of home ownership.
Redistribution must not become more important than wealth creation
The current political discussions, however, are oriented in the opposite direction. Because this is about redistribution in one form or another: expropriation of housing groups, rent caps, wealth tax, excess profit tax or abolition of patents.
In all these proposals, one part of the population is to be taken away in order to give to the other part. However, politics must not concentrate on symptoms, but must tackle the roots.
Redistribution is and remains a central and important function of the social market economy. However, it becomes problematic when it overshadows the discussion of how wealth can initially be created. It is therefore time for a new principle that places wealth accumulation for everyone in Germany at the center of economic policy.
At no point is the opportunity for rethinking as great as with the introduction of elements of a funded pension. The traditional discussions about reforms of the pension insurance in Germany revolve around four points, namely the retirement age, the contribution rates of the working population, the amount of the pensions and the extent of the subsidies from the federal budget.
The elementary school in Sauerland, which Franz Müntefering tried in this context, is sufficient to establish that the German pension system is about to undergo massive changes in at least one of these four adjustment screws. The current government has postponed these changes until after 2025, but they will return to the political agenda with all the more force.
Can the share pension stabilize the pension system with a prospective start-up capital of ten billion euros? Of course not. It is clear to everyone that more funds need to be moved.
Stock annuity is a step in the right direction
However, the introduction of stock pensions is an important first step. Because it is precisely in the long-term periods of retirement that shares can show their full potential. As the fifth set screw, you can therefore make an important contribution to reducing the pressure on the other four set screws.
In its most recent statement, the Scientific Advisory Board at the Federal Ministry of Finance has developed concrete proposals on how the share pension can be structured. He emphasizes that according to modern knowledge of portfolio theory, the investment of the capital must be transparent and with low management fees.
There should be no guarantees for paid-in contributions in order to enable opportunities for sustainable returns in the investment. A state standard product should be offered as well as comparable products from private suppliers. These elements of a funded pension, which have been successfully implemented in Sweden, can serve as a model for discussions in Germany.
The importance of stock pensions goes beyond stabilizing the pension system. Because when people see how their capital is developing, uncertainty about financial issues will decrease. Politicians can offer further support in important areas.
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Germany is still one of the very few OECD countries that does not have a national strategy for financial education. But how is the lack of knowledge about long-term wealth accumulation to be overcome if the population does not have comprehensive knowledge about the fundamental mechanisms of capital markets?
It is then not possible to make mature and responsible decisions about financial matters and it would be better to leave it to third parties with dubious interests of their own. The introduction of stock pensions and an associated national strategy for financial education could permanently change this situation.
We need a stronger domestic capital market
The chances are huge. With the mobilization of more capital, a stronger domestic capital market can be created. This is of essential importance for the massive transformation that is ahead of us, in which private investments, which are much larger in type and scope, must step in alongside state investments.
A stronger domestic capital market would also help create and grow young and innovative companies. When it comes to financing their growth, they often have to resort to foreign sources of financing, which then also reap the rewards of their investments.
A strong domestic capital market, integrated into an overall European architecture and with broad public participation, would ensure that many more people could benefit from these developments. Political discussions would then focus less on redistribution and more on economic and political participation. The share pension would thus be the starting signal for a new policy that focuses on wealth for all people.
The author: Jörg Rocholl is President of the European School of Management and Technology Berlin and Deputy Chairman of the Scientific Advisory Board at the Federal Ministry of Finance.
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