Eleven million households cannot save enough for old age

Almost eleven million households in Germany cannot close their pension gap in old age on their own. This is shown by a recent study conducted by the Prognos research institute on behalf of the German Insurance Association (GDV). This mainly affects lower income earners as well as single people and single parents.

"In four out of ten households with people of working age, the financial maneuvering room is too narrow even if they were to use all of their monthly discretionary money for retirement provision", said Prognos study director Oliver Ehrentraut. Due to the low savings potential, there is a need for catching up and, in some cases, support in these groups. Possible allowances, such as the state Riester subsidy or employer subsidies for company pension schemes, were not included in the calculation.

Inflation is exacerbating the pension situation

The current high inflation rate is further exacerbating the situation. “On the one hand, inflation increases the need for provisions for the future, but at the same time it narrows the leeway for saving today", emphasised GDV CEO Jörg Asmussen. Better support, especially for low-income earners, is therefore urgently needed, particularly because the rising prices hit the lower income groups the hardest, as the study also shows.

While consumer spending for all households has increased by an average of 5.7 per cent since April 2021, it climbed 7.8 per cent for the lowest income quartile of households. "Inflation is exacerbating the retirement situation of broad segments of the population", Ehrentraut said. People with low incomes are barely able to absorb the inflation, as their share of "non-essential" expenditures is relatively small. "The additional spending then comes at the expense of potential savings, and thus retirement savings".

Make subsidies more attractive - reduce investment restrictions

To make it easier for low-income earners in particular to save, GDV is calling for a more attractive and simpler subsidy system. "An increase in allowances is needed", Asmussen says. At the same time, the earnings potential of subsidised pension plans has to be improved in order to counter inflation. "A relaxation of the 100 per cent premium guarantee would allow providers to invest customers' money with greater opportunities", the GDV CEO said. Product costs could also be reduced if legal requirements were simplified and complicated choices eliminated.

The study is available to them as a web magazine at this link.

About the study:

The study is based on an analysis of the random survey of income and consumption for 2018. The survey allows a differentiated determination of the expenditure or consumption structure of households. The analysis focuses on households with persons of working age. Retired households and shared housing, among others, are not included. A total of 25 million households or 61 per cent of all households in Germany are included. A distinction is made between four types of households: Single people, single parents, couples without children, and couples with children.

In addition to the savings potential of households based on the survey, the study models the savings requirements for old-age provision. Prognos's calculations assume an income replacement ratio (or a target "pension level") of 55 per cent. The following assumptions are made for this purpose: Individuals born in 1975 and retiring in 2042 are considered. The statutory pension level of around 44 per cent will then be topped up by a good 10 percentage points through supplementary pension provision. The savings requirement for this is around 6.6 per cent of personal net income. The projections for the determinants of retirement demand are based on Prognos's proven macroeconomic and microeconomic models, in particular the OCCUR social security model. A product-independent interest rate and costs are applied to the savings requirement. Forms of state support in the Riester pension or company pension schemes are not taken into account.