Germany's pension system ranks 20th in the world, according to a ranking of 48 countries published by Human resources firm Mercer and the Chartered Financial Analyst (CFA) Institute this week.
The score, which represents an evaluation of what the system offers retirees, how financially viable it is for the future and how reliable it is at ensuring benefits, is marginally better than Germany received in 2023 but still shows room for improvement.
Overall, the Mercer and CFA report highlights need for retirement system improvements in most countries, given falling birth rates and increasing longevity.
Looking at Germany in particular, the report recommends three actions that should be taken to improve its pension system going forward.
How can Germany's pension system be improved?
The report spells out that "Germany’s retirement income system comprises an earnings-related pay-as-you-go system based on the number of pension points earned during an individual’s career, a means-tested safety net for low–income pensioners and supplementary pension plans that are common among major employers."
It concludes that "the overall index value for the German system could be increased by":Â
- Increasing the minimum pension for low-income pensioners ̶
- Increasing the level of funded contributions in private pension plans, thereby increasing the level of assets over timeÂ
- Increasing coverage of employees in occupational pension plans
Mercer added The German index value increased slightly from the 2023 ranking "primarily due to an increase in the net pension replacement rates and improvements in household savings and household debt."
While Germany's pension system earned a 'B' grade overall, the grade is broken down into three categories in the report: Adequacy (A), Integrity (B+) and Sustainability (D). The low mark in the sustainability category seems to suggest that Germany's current system cant be maintained into the future without reform.
The topic of pension reform has made the news in German media often this year, as the federal government has wrestled with how it can make the country's pension system more stable.
Proposed pension reforms have been delayed at every turn due to political disagreements.
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The formidable challenge left to Germany's would-be pension reformers is how they can raise pension payments enough to off-set inflation without increasing the burden on young tax payers too much or further raising the retirement age.Â
The latest proposal for a public pension reform package - called Rentenpaket II and drafted by Finance Minister Christian Lindner (FDP) and Labour Minister Hubertus Heil (SPD) - aimed to fix the pension level at at least 48 percent until 2040. It planned to do so by raising the contribution rate to 22.3 percent by then. The current contribution rate is 18.6 percent.
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But as of Monday, the traffic light coalition government had still failed to agree on and pass the proposed reform.
According to reporting by DPA, Labour Minister Heil warned this week that future pensioners will become poorer if the pension reform fails to pass.
How does Germany's pension compare internationally?
Among the other countries evaluated by Mercer, Germany received an average score. It was at the bottom end of the countries given a 'B grade' - just behind Ireland and France, and just ahead of Croatia and Portugal.
Germany's neighbours to the northwest, however, were better positioned.
The Netherlands’ pension system earned the highest score and Denmark was ranked third.
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