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German pension system falls short on sustainability, integrity

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  • German pension system falls short on sustainability, integrity

GERMANY - The German pension system is particularly lacking in the areas of sustainability and member communication, according to Mercer Germany.

The consultancy's German division has drawn its conclusion from the 2010 Melbourne Mercer Global Pension index, in which Germany made it in the C category, with an index value of 54, slightly better than in 2009 when it achieved 48.2.

Peter Doetsch, chief executive at Mercer Germany, said: "The comparatively bad ranking for Germany is down to the fact international systems are not directly comparable because of their particularities."

He added that the index was compiled based on the legal requirements in the system, rather than actual implementation of these regulations, which is "usually above the legal requirements in Germany".

"But the study points out areas for improvement in the German system," Doetsch added.

The Germany system fared particularly badly in the category of 'sustainability', earning a score of just 42.3.

Mercer recommended increasing the labour force participation rate among older workers and moving away from a pure pay-as-you-go system in the first pillar.

The consultancy said another area in which the German system needed improvement was 'integrity' (54.4), covering legal requirements, governance, security, communication and costs.

Mercer said pension funds should be required to make an annual communication to members, informing them about their current level of benefits and to what extent they were likely to increase until retirement.

But Germany received an above-average index value (64) in the category of 'adequacy', reflecting good pension provision for median earners from the first and second pillars.

To increase the value in this category, Germany would have to increase low earners' pensions and make it mandatory for at least some of the benefit to be taken as an income stream, Doetsch said.

 

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