The recent shift in responsibility for retirement income to the individual level in many countries has put the question about the adequacy of pensions high on the agenda. The debate is very often closely linked to the fear of old age poverty if individuals fail to prepare for their own retirement. We ask whether German households save enough – and to what extent they do so – in order to fill the reduction in retirement resources that is arising due to a number of pension reforms implemented in Germany between 2001 and 2014. We calculate the “pension gap” as the difference between the accrued public pension calculated according to the rules in place before the 2001 pension reform and the pension calculated according to the current regulatory framework.
This project has two major parts. In a first step we use MEA Pensim to calculate the pension gap and the filling of this gap under different assumptions for the so-called “standard pensioner”. Based on stylized working and savings histories, we analyse, for example, the effects of interrupting the savings period, and the effects of low interest rates on the standard pensioner's ability to fill the pension gap.
Second, we examine the savings behavior of German households and the individual possibilities to close the pension gap using data from SAVE and from SHARE-RV.
The projections for the “standard pensioner” as well as the calculations based on household data show that a funded supplementary pension can buffer the future reductions of the public pensions. On average German households can fill the pension gap even if the interest rates remain on a low level: Based on current net total wealth, a nominal interest rate of 2%, and current saving behavior 78% of the German households would fill the pension gap by more than 100%. Nevertheless, about 8% of the households will arrive at their pension age with negative wealth and around 15% can only partially fill the pension gap based on current saving behavior. Higher interest rates would make it easier for wealthy households but harder for households carrying debt to close the gap: Raising interestrates up to 4.5% would only increase the fraction of households filling the pension gap by 4 to 6 percentage points.
We received financial support from the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. Results were documented in a working paper and entered the expertise on the Riester pensions submitted to the Expert Council of Economic Advisors in September 2016.