Company pension schemes: Need for reform in Germany

Company pension schemes: Need for reform in Germany

A look abroad suggests that company pensions are a promising option for effectively preparing for retirement. In Germany, however, numerous hurdles remain that make retirement provision more difficult. According to the Federal Statistical Office, 15 percent of men and 20.8 percent of retired women are in the poverty trap. Despite repeated pension reforms, the situation has not been fundamentally improved. Retirement provision in Germany in particular has serious deficits, as a study by the Roman Herzog Institute confirms.

Company pension schemes, in which employers set up pension pots for their employees, are a popular supplement to state pensions in Germany. However, implementation is often complicated and involves numerous requirements. The lack of consideration of behavioral economics means that potential candidates rarely take action to take advantage of company pension schemes. In contrast, countries such as New Zealand and Sweden have demonstrated successful approaches through the use of “nudging,” which helps workers take responsibility for their own retirement without being patronized.

In 1999, Sweden introduced a mixed model for state pension provision, which also includes shares in the premium pension. In the long term, employees and employers each bear 40 and 60 percent of the investment. With assets of around 2,000 billion Swedish krona (approx. 178 billion euros) in 2023, Sweden has extensive retirement funds. In Germany, a similar model attracted interest and was discussed under the name “generation capital”, formerly stock pension. Despite controversial opinions on the pension solution, the potential adoption of the model in Germany is being considered.

There are also positive developments in New Zealand thanks to the KiwiSaver program to promote company pension schemes. Automatic registration of new employees with KiwiSaver and flexible contribution rates enable broad participation. With government subsidies and a focus on safe investments, over 3.3 million New Zealanders have benefited from this program. Through effective measures such as “nudging” and innovative pension models from abroad, Germany could reduce the hurdles for company pensions and sustainably strengthen pension provision.