Pension provision in Germany has been in crisis for years. Compared to other countries, the Germans are at the bottom not only when it comes to private wealth accumulation, but also when it comes to statutory pensions. The introduction of Riester’s pension has not brought the positive results, which is why the current government has introduced several draft laws, for example the Pension Package II on the other hand, it was it should also relieve the burden on the pension fund through an equity fund called generation capital. There is also a proposal from the Federal Ministry of Finance to introduce a so-called retirement provision package, which would allow citizens to establish their own security portfolio with stocks, currencies and ETFs on a tax-advantaged basis. These proposals are well received by most Germans.
A representative survey shows deep distrust in statutory pensions
For four years now, the Minority Shareholder Initiative has commissioned the opinion research institute Forsa to conduct a representative survey among 1,002 German citizens between the ages of 18 and 70, selected using a process systematic randomization, on the subject of stock pensions and retirement provision. The results consistently show that, even in 2024, there is great trust in the respondents regarding the statutory pension. As a result, 88 percent do not believe they will be able to provide adequate retirement provision with this. This year, additional questions were asked about generational capital, retirement savings accounts and general financial knowledge. In general, it can be said that it is very often that people in this country do not know much about the best way to build wealth themselves. However, stocks are more suitable for this purpose, as long-term studies show again and again. Because the daily ups and downs of the capital market are not critical, but rather a continuous investment in stable values, not in risky securities.
The survey showed that a growing majority of 69 percent of respondents would support the introduction of generation capital as an additional component to fund pension insurance. With an initial base of 12 billion euros, the state would establish an equity fund, the income from which could significantly relieve the burden on the pension fund at some point in the 2030s. This fund would be managed by KENFO. This public fund is used to get rid of nuclear waste and, according to KENFO, it would have already generated a billion euros if the generation capital had been introduced more than a year ago. So you can see that time is a very important part in raising capital. Despite this, the legislature continues to delay the necessary reforms and thus damages the German budget.
Adhering to the pay-as-you-go principle costs a lot of money
The truth is: Germans have been relying on the statutory pension for far too long. The demographic changes were already visible thirty years ago. It was clear that the demographic figures would put more weight on the pay-as-you-go principle, where today around two workers finance one pensioner and the budget must add more than 110 billion euros each year. We are now at a clear disadvantage compared to other countries, such as Sweden. The Vikings paid part of their pension contributions into a timely fund, which now generates significantly higher pensions through capital market returns and puts less pressure on the state budget.
As the separate stock pension proposed by the FDP was rejected by the traffic light partners, there is now a proposal for a retirement provision centre. The implementation of this proposal, which intends to introduce a tax-subsidized instrument for private retirement provision with stocks and ETFs from 2026, would be a milestone in German politics. One can only hope that the pension fund gets through parliament quickly. This is also supported by the majority of Germans surveyed by the Minority Shareholder Initiative (59 percent). Basically, it can be said that very unqualified criticism is often heard about retirement savings accounts. Unfortunately, the critics do not come up with many useful alternatives. Of course, a general reduction in taxes on stock ownership would be desirable, but a state-supported system increases the willingness and confidence of citizens to take advantage of the offer.
In any case, it is usually the young people who are open to saving in stocks. According to the results of the survey, the approval rate among people aged 18 to 29 years is 77 percent (2023: 74 percent; 2022: 71 percent; 2021: 61 percent). It should be made clear to them that their pension is no longer “safe”.
Lack of financial education is a big problem in Germany
One problem here: lack of financial education! The majority of those surveyed (54 per cent) said they do not have enough financial knowledge to make the right investment decisions for private retirement provision. Among the younger respondents (18 to 29 years old), nearly two-thirds believe they lack the financial knowledge to make their investment decisions. One solution that could be introduced is a separate school subject, “Finance and Economics,” which 85 percent of those surveyed support. There are uncertain efforts in this direction in the Ministry of Education, but they usually fail because of the federal system. Recently there was an interesting proposal from the Council of Experts. The economists want to introduce a “child start allowance”. Every child between the ages of six and eighteen should be paid 10 euros per month into a stock portfolio so they can learn how to manage stocks. This is definitely something worth considering.
Conclusion: A Forsa survey by the Minority Shareholder Campaign confirms and confirms that not only is there a need for comprehensive reform of pension finance and retirement provision, but that a majority of the population who increasingly welcoming, especially the younger ones. This should be a confirmation and at the same time a call for the legislature to continue to work proactively and firmly.
2024-11-06 05:32:00
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