Pension reform in private sector urged by consumer advocacy groups.
The Riester pension system, long a cornerstone of Germany's retirement provision, is facing growing criticism for its shortcomings, particularly in serving low-income and self-employed individuals. A study by Ergo insurance company reveals a majority of self-employed fearing old-age poverty, and 46 percent of citizens report being unable to save any or less money for retirement due to the pandemic.
The Consumer Centers, an association advocating for consumer rights, believe it is possible to have three wishes - high-yield, low-cost, and significantly better pension offers - met. They propose a concept for an additional pension, where employees pay into it through their employer, with a public trustee managing investments in the capital market.
However, a specific, fully developed alternative pension system endorsed by the Consumer Centers that surpasses the Riester pension in yield and cost-effectiveness is not detailed in recent sources. Klaus Müller, head of the Federal Association of Consumer Centers, has stated that an alternative to the current Riester pension is necessary, regardless of the composition of the next government.
The current reform discussions in Germany focus on stabilizing the pension system by encouraging work beyond retirement age, increasing participation in occupational pensions, and diversifying retirement savings with government incentives. Politicians from the SPD and Greens have expressed strong reservations about reductions in pension benefits and emphasize the importance of maintaining pension levels to avoid increasing old-age poverty, especially among vulnerable groups such as women in eastern Germany and self-employed individuals.
Criticism of the Riester pension includes calls for restructuring private pension schemes to better serve citizens. One existing alternative pension model outside the statutory system is the pension scheme managed by the Nordrheinishe Arzteversorgung (NAEV), which combines capital cover and adjustable contributions and invests in a diversified portfolio including real estate and equities.
Public concern about old-age poverty, especially in self-employed and marginalized populations, is growing, putting pressure on policymakers to strengthen pension coverage and benefits. The number of pensioners dependent on social welfare has risen to a record high, indicating gaps in coverage and adequacy of pension incomes.
In summary, a call for pension reform is echoing across Germany, with the need for a high-yield, low-cost alternative to the Riester pension gaining traction. Proposed reforms focus on enhancing statutory pensions, incentivizing private/occupational pensions, and encouraging longer working lives, but a comprehensive new system specifically targeting self-employed individuals has yet to be adopted. Existing alternatives like the NAEV pension scheme provide some examples of mixed funding models but are limited in scope. The Consumer Centers' proposed concept for an additional pension, while not fully detailed, offers a potential path forward in addressing the growing concerns about old-age poverty.
Personal-finance experts suggest that diversifying retirement savings could help alleviate growing concerns about old-age poverty, particularly among self-employed individuals. To this end, the Consumer Centers propose an additional pension concept, where employees contribute through their employers, with investments being managed in the finance sector, possibly excluding high-risk ventures, for a more stable personal-finance future. Insurance companies, such as Ergo, could play a role in this by offering affordable and competitive pension products to facilitate this transition.
