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IPE special report May 2018

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Only small German minority to gain decent pension - research

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  • Only small German minority to gain decent pension - research

GERMANY - Just under 19% of Germans are building benefits in an occupational pension scheme and nearly 30% have a "Riester-Rente". But only half will find this will be sufficient to uphold their current living standards, suggests research.

A study on German pension provision, commissioned by Union Investment and conducted by the "Research Institute on the Intergenerational Contract" at the Albert-Ludwig university in the German city of Freiburg, found around 57% of Germans with (future) incomes from the first and second pillar - the latter including both occupational pension schemes as well as the state-subsidised "Riester-Rente" - will find these payments will be enough suffice for their retirement.

The study assumed a 60% replacement rate as sufficient income from which it is possible to uphold current living standards.

While the rate of those with a sufficient retirement provision is almost the same in Eastern and Western Germany, the sources of those savings differ.

Eastern Germans still have less access to occupational pension schemes but they compensate by using the Riester-Rente more than their Western countryme, according to the study.

The first pillar alone only suffices for around one-fourth of the population - mainly civil servants who have a different state pension system from other employees.

What the researchers also found was that richer Germans are likely to be the most disappointed with their state retirement provision.

Among those with lower incomes the replacement rate will be around 61% while those with higher gross incomes above €1,500 per month will get more money out of the state system in absolute figures but in relative terms their average replacement rate will only be 33.9%.

Younger people are facing a further decline in payments from the first pillar because of various pension reforms over recent years.

The researchers also argued an increase in unemployment, as a result of the financial crisis, will lead to lower payments to the first pillar.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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