Minister of Pensions Hubertus Heil (SPD) firmly believes in statutory pension schemes. “The statutory pension is strong and stable,” Heil said last Friday in view of the latest pension increase. Since July 1, the 21 million pensioners have received 5.35 percent more pensions if they live in the west, while those in the east have received a pension increase of 6.12 percent. That’s not enough to offset the current price increase of 7.6 percent. But it is the strongest increase in almost 40 years, emphasizes the German pension insurance.

For people who have not yet reached retirement age, however, the future does not look quite so rosy. The pension level, which expresses the security power of pensions in relation to wages, will fall slightly in the coming year, warns Alexander Gunkel, Chairman of the Federal Board of the German Pension Insurance Association. The pension level will be just over 48 percent in 2023. In 2024 and 2025, only the legal minimum limit will probably prevent the pension level from slipping below 48 percent. The pension level describes the ratio of the pension of a standard pensioner after 45 years of contributions to the average employee’s income.

However, even 48 percent is not enough to maintain the standard of living that one is used to from one’s working life. This would require a pension level of 55 percent, according to a new study by the consulting firm Prognos for the German Insurance Association (GDV), which is available to the Tagesspiegel in advance. The problem: In order to achieve this, around 6.6 percent of the net income would have to be saved for old-age provision, but many don’t manage to do that. “In four out of ten households with people of working age, the financial leeway is too small, even if they were to use all of their freely available monthly money for old-age provision,” emphasizes Prognos study leader Oliver Ehrentraut. Almost eleven million households cannot close their pension gap on their own.

High inflation exacerbates the problem. “On the one hand, inflation increases the need for provisions for the future, but at the same time narrows the scope for saving today,” GDV General Manager Jörg Asmussen told the Tagesspiegel. The rising prices hit the lower income groups hardest. While consumer spending for all households has risen by an average of 5.7 percent since April 2021, it has risen by 7.8 percent in the lowest income quarter of the population.

“Inflation is exacerbating the old-age provision situation for large sections of the population,” warns Ehrentraut. In contrast to the better off, people with low incomes can hardly absorb the inflation because they have hardly any expenses that are not necessary. “The additional expenditure is at the expense of savings potential and thus old-age provision,” criticizes Ehrentraut. He sees politics as having a duty to take countermeasures in socio-political terms.

The insurance association sees a solution in improving the Riester subsidy. “An increase in allowances is necessary,” says Asmussen. In addition, the state must relax the requirement that 100 percent of the contributions paid by the insured must be retained. This regulation prevents a more promising and higher-yield investment of the capital. In addition, simpler legal requirements would also lead to falling costs for Riester products. According to the Prognos study, the subsidy subsidy is basically suitable for providing targeted support to low-income households. However, it must be said that the Riester pension has not yet sufficiently catered to these target groups, despite the funding. According to Prognos, there is an “acute need for action” so that the funded supplementary provision can have a nationwide effect.

Regardless of inflation, the Riester pension is struggling. More and more insurers no longer offer new products. A reform sought by the financial sector failed in the past legislative period. Instead of the Riester pension, consumer advocates are calling for a new capital-covered old-age provision fund for German citizens. In the coalition agreement, the introduction of a share pension is agreed, which is intended to supplement the statutory pension insurance. Initially, the state is to finance the construction; later, part of the pension contributions is also to flow into the funded system. Pension Minister Heil is working on it. For a stable pension, “on which everyone can rely, I will set the course again this year,” said the SPD politician last Friday.