The German pension system ranked fairly well, landing in the middle of the pack at 19th place out of 47 countries evaluated by Mercer and the CFA Institute. This global ranking is based on various factors such as adequacy, system design, savings, tax support, homeownership, growth assets, sustainability, integrity, and more.
This year, Mercer analyzed pension systems from around the world, focusing on essential indicators and sustainability. The Dutch pension system emerged as the best, with top-tier ratings in all categories, earning a score of 85 out of 100. Conversely, countries like Thailand, Turkey, Argentina, and India struggled with serious shortcomings and needed improvements.
Germany's pension system received a score of 66.8, placing it in the middle of the pack. It's composed of three key components: pay-as-you-go, private pension plans, and personal contributions. Monthly pension payouts represent 70% of net labor income.
Mercer suggested enhancing Germany's pension system by increasing the minimum state pension. This change aims to strengthen the overall pension system and potentially improve its ranking in the global index. Simultaneously, retirees in Germany must manage their finances carefully, considering potential income taxes on retirement income.
Some suggested improvements to the German pension system include tax breaks for working pensioners, higher minimum wages for long-term care workers, a unified contribution ceiling for pension and unemployment insurance, and government-funded pension contributions for children between 6 and 18. These changes aim to improve pension adequacy, sustainability, and integrity, key factors in global pension system assessments.
Regarding tax breaks for working pensioners, the Christian Democrats propose allowing pensioners to earn up to €2,000 per month tax-free if they continue working beyond the national retirement age of 66. This could motivate more pensioners to stay in the workforce, increasing their overall income and potentially improving their pension adequacy.
Minimum wages for long-term care workers are projected to increase significantly between 2022 and 2025. However, these increases may still fall short of closing the wage gap with other industries. Higher wage increases for LTC workers could lead to better pension outcomes for these individuals.
In 2023, the East/West legal district distinction in Germany will be abolished, leading to a unified contribution ceiling for pension and unemployment insurance. This change simplifies the contribution structure and could potentially lead to more equitable distribution of benefits, improving the overall pension system's ranking.
The CDU/CSU has proposed introducing government-funded pension contributions for children between the ages of 6 and 18. This initiative aims to build a pension fund for future generations, enhancing the overall pension system's sustainability and adequacy.
In conclusion, the German pension system secured a respectable position in the global ranking, but improvements are needed to boost its ranking. Proposed changes focus on aspects of pension adequacy, sustainability, and integrity. However, their effectiveness will depend on successful implementation and the broader economic context.
