What traffic lights can learn from other countries

Frankfurt More capital coverage in old-age provision, savings models adapted to age, mandatory company pension schemes, automated adjustment of the retirement age, digital overview of all pension entitlements: the new federal government could learn a lot from neighboring European countries that would be useful for its planned reform of old-age provision. Above all, the politicians in the traffic light coalition should get started quickly and boldly in order to solve the problem of declining care for the elderly, primarily as a result of the aging society. This is what the participants of a digital conference of the German Institute for Old Age Provision (DIA), the voice of the financial industry for the topic, demanded in Berlin.

Tabea Bucher-Koenen, economics professor at the University of Mannheim and economist at the Center for European Economic Research (ZEW), said the federal government could learn something from the various pension systems in Europe in order to tackle the goals for old-age provision mentioned in the coalition agreement.

Pension systems in other countries are often more sustainable thanks to greater financing via the capital market, agreed Udo Müller, senior pension expert at the management consultancy Mercer in Germany. Mercer regularly compares pension systems from different countries.

Since the beginning of the millennium, the Swedes have kept individual accounts for the citizens for the statutory pension and invested 2.5 percent of their gross wages in the capital market, explained Bucher-Koenen. Every citizen can select five funds themselves or the state AP7 fund. The system is efficient and inexpensive, she said.

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The accounts would not be run by fund providers, but by the state. The fund managers manage the collected capital. Such a “centralized investment decision has great leverage,” said the ZEW expert. For example, investors would not have to read seven pages of fine print about costs.

Liberals like to refer to Sweden

In order to stabilize the statutory pension, the federal government not only wants to invest part of the capital in the stock market, but also strengthen company and private provision through investments with higher potential returns. FDP politicians in particular like to refer to Sweden in connection with their idea of ​​a so-called share pension. For this purpose, ten billion euros are to be invested in the capital market for the statutory pension in 2022.

However, economist Bucher-Koenen emphasized that this is not a transition to a Swedish system with capital cover. The share pension planned by the government can only be part of a pension reform, said Alexander Leisten, head of the fund provider Fidelity International in Germany: “There is an urgent need for a rethinking of pension policy in all three pillars.”

Tabea Bucher-Koenen

In order to tackle the goals for old-age provision, the federal government can learn something from the various pension systems in Europe, says the expert.

(Photo: ZWE / Anna Logue)

The federal government wants to stabilize the statutory pension level at 48 percent of the last net average income. However, scientists have calculated that around 85 percent is necessary, said Leisten. “First of all, we need an awareness of the problem of this gap,” he emphasized.

Pension systems in other countries such as the Netherlands are more stable in an aging society, as emphasized by Mercer’s Udo Müller. The core of this system is an obligatory company pension scheme that helps to bring the level of care to around 80 percent.

More capital market in old-age provision is considered “elementary”

Thinking in the direction of the capital market is elementary for provision, said Fidelity boss Leisten, whose company offers many fund savings plans tailored to age for private and company provision. The Swedes also use such models for the statutory pension, according to Bucher-Koenen.

In private provision, the federal government wants to examine, among other things, higher-yielding, inexpensive alternatives to the subsidized Riester pension. There are proposals for a state-organized fund à la Sweden, which are giving financial providers a headache because this could thwart their pension business. The industry has also submitted reform ideas to the government.

The experts see role models for the German pension system in two other places. The Netherlands, Denmark, Sweden and Italy link retirement to the development of statistical life expectancy. This automatically adjusts their pension systems to the aging of society. In Germany, on the other hand, there is a lot of discussion as to whether such adjustments are possible, complains consultant Müller.

According to ZEW economist Bucher-Koenen, digital pension overviews, which are available in Sweden, Denmark and the Netherlands, are also important. It is important that people can see at a glance what their overall requirements are and what may still be missing. In Germany, such an overview was decided years ago, but it has not yet been implemented.

More: What the coalition agreement of the new traffic light government means for investors and consumers

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