Germany’s proposed capital-funded first-pillar pension scheme could accumulate €2.18trn by 2060, according to a report published by the Leibniz Institute for Financial Research (SAFE).
The research forecasts that the fund would grow to €560bn by 2040 and €1.25trn by 2050, reaching €2.18trn by 2060 in nominal terms.
Authors Claudia Schaffranka, SAFE’s co-head of policy centre, and Milena Schwarz, deputy secretary general of the German Council of Economic Experts, based their calculations on forecasts for per-capita gross wages and employment trends from Deutsche Rentenversicherung, the first-pillar pension system’s administrator.
The resulting contribution inflows are projected to reach €41.2bn in 2031 and rise to €68.2bn annually by 2050, research found.
This compares with preliminary estimates of €30bn-€35bn annually, based on contributions increasing by 2% a year between 2028 and 2031, as proposed by the pension commission.
In a LinkedIn post, Schwarz said Germany would build “one of the world’s largest pension funds within two decades” if the commission’s recommendations were implemented”.
“The actual size of the fund depends primarily on the capital market return and the share of savers who remain in the public fund,” she added.
Under the commission’s recommendations, savers would be able to remain in the public default fund, modelled on Sweden’s AP7, or opt for a fund offered by a private provider or asset manager.
The study assumes that, as in Sweden when its premium pension model was introduced in 1995, contributions would flow exclusively into the public fund for the first five years, from 2028 to 2032. Private providers would become an option from 2033.
Drawing on Swedish experience, where around 4.3% of savers switched from the public to private funds in 2020 and 4.6% in 2021, the authors project that 3% of German savers would switch each year during the first decade after private options became available, falling to 2% annually thereafter.
These assumptions offer an indication of the potential assets available to private-sector managers if the reform proceeds, although the eventual allocation will depend on saver choices and investment returns.
Amundi, DWS and Fidelity are among the asset managers eyeing opportunities from the proposed reform of Germany’s first-pillar pension system.
