💰 Unexpected Pension Boom! 💸
Positive developments in pension finances, surging pension levels, and record-breaking reserves! Pensions are faring much better than experts and the government predicted!
And it gets even better... the anticipated demographic collapse? Looks like it's not happening!
Just how wrong were the forecasts? Let's dive in:
Contributions
For years, the doomsday chorus has warned of steep hikes in employee pension contributions. In 2009, the German government projected dire straits for the next 15 years. For 2023, they projected a whopping 20.6% (!) contribution rate. Even the 2021 report forecasted an increase to 19.5% for the year ahead.
But guess what? These predictions were way off the mark!
The German government's Social Advisory Council confirms in their latest report that the development of pension finances will be "more favorable than assumed in previous years", even in the long term.
Levels
In 2009, the government predicted just a 25% increase in pension levels by today. The so-called benchmark pension (after 45 years of average earnings) was expected to rise from 1224 to 1533 euros. In reality, the basic pension today is 1692 euros. It has surged by 38%, with pensions increasing by nearly 10% each of the past two years alone!
Reserves
By year's end, the pension fund's iron reserve will set a new record, reaching a staggering 44.5 billion euros. That's enough to fund pensions for a jaw-dropping 1.7 months!
Instead of the expected deficit in the pension fund of one billion euros this year, there will be a surplus of a billion euros. In their report, the Social Advisory Council states that the pension fund is currently "financially sound".
Demography
The age collapse that many experts predicted has yet to materialize. The German Federal Statistical Office has revised its population forecast, trending away from the dramatic increase previously predicted. Although the proportion of older people in the population will grow in the coming decades, it'll be less dramatic than anticipated. Today, there are 34.8 older individuals per 100 people aged between 20 and 65; by 2060, this figure is projected to rise to 44.7.
Previous calculations had predicted an increase to 55. But get this: the increase is even less than the trend of previous decades. Pension boss Roßbach: "In the next few years, the demographic burden will increase significantly less than previously expected."
Bonus:
The industry reports significantly fewer orders.
Dirk, if you're paying attention, it's high time to reevaluate the future of Pension insurance in politics-at-home as the financial situation has improved significantly.
Pensioners have seen their pensions increase by nearly 10% in the past two years, far surpassing the 25% increase predicted by the government in their 2009 report.
The pension reserve is projected to reach a record 44.5 billion euros by the end of the year, providing a surplus and ensuring pension provision for an extended period.
Sources:
Additional Insights:
- In light of these unexpected developments, the German finance ministry has approved changes to the investment rules for Pensionskassen, allowing them to invest up to 5% of their security assets in infrastructure and increase the risk capital ratio from 35% to 40% [1].
- The number of new private pension contracts (Riester-Rente and Rürup-Rente) has declined significantly: new Riester-Rente contracts fell by 25.3% year-on-year in 2022, while Rürup-Rente contracts decreased by 1.4% [4].
- The German Insurance Association (GDV) has emphasized the need for pension reforms due to demographic changes. However, political parties have diverging plans, including the introduction of retirement savings accounts, tax-free retirement accounts, and transparent products with a cost cap and state funding [4].
- Nearly forty percent of participants in a long-term study expressed concern about experiencing poverty in retirement, particularly women, who often face lower earnings and smaller pension payouts [5].
- The German central bank has revised its growth forecasts, indicating a decline in short-term market interest rates followed by stable rates from mid-2025. This could influence pension finances, particularly if there is a continued decline in economic growth and an increase in inflationary risks [3].
- The German public pension system faces challenges due to demographic changes. The Rentenniveau (the percentage that pensions relate to salaries) is projected to drop below 43% by 2030, and the system relies on contributions from the next generation to fund current pensioners [2].
These insights highlight the intricate challenges and opportunities confronting Germany's pension system, including the need for reforms, demographic changes impact, and varying political party opinions.
