How does Germany's pension system measure up worldwide?

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How does Germany's pension system measure up worldwide?
Retirees sitting on a sunny bench in Bavaria. Photo: DPA

An international analysis has concluded that Germany’s pensions system is among the best in the world – but there is lots of room for improvement.


The annual Melbourne Mercer Global Pension Index placed the German pensions system behind that of 12 other countries, including the Netherlands, its Scandinavian neighbour Denmark, Sweden, Australia and Finland.

It was placed in the B category, "a system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system".

The Netherlands and Denmark were the only countries out of 37 included in the final report that were awarded an A grade, with each receiving scores of over 80.

Germany’s index value meanwhile dropped from 66.8 in 2018 to 66.1 this year, but the report stated this was mainly due to updated UN data and a fall in real economic growth reported by the IMF.

Understanding German pensions

The report suggested the German pensions system could be improved by:

  • Increasing the level of funded contributions and therefore increasing the level of assets over time.

  • Increasing the minimum pension for low-income pensioners.

  • Increasing coverage of pensioners in occupational pension plans.

  • Increasing the rate of participation in the labour force as life expectancies rise.

  • Improving the level of communication from pension arrangements to members.

Germany’s retirement income system is comprised of an earnings related pay-as-you-go system based on the number of pension points earned during your career. Some key features are a safety net for low-income pensioners and supplementary pension plans which are common amongst major employers. 

The easiest way to understand how the German pension works is breaking it down into three parts. There are three different sources: the state, your employer and yourself.

Overall, the amount you receive will depend on factors such as your salary, your other benefits, how long you work in Germany, when you start collecting your pension, how your occupational pension scheme is structured, and how much you save in private funds. 

Read more here about how the German pension system works, and how to maximize your German pension, even if you plan to retire elsewhere. 

Currently, the official pension age for women and men in Germany is 65, but that is gradually increasing to 67 over a transition period up until 2031.

Germany’s Bundesbank has also proposed raising the pension age to 69 in order to factor in increased life expectancy. 

READ ALSO: Should Germany raise the retirement age to 69?

How Germany was ranked

The value was divided into three sub-categories: adequacy (benefits, system design, savings, tax support, home ownership and growth assets), sustainability (pension coverage, total assets, contributions, demography, government debt and economic growth) and integrity (regulation, governance, protection, communication and operating costs). 

Other countries in the B bracket were for example Canada, Chile and Sweden, while countries such as the UK, US and France received a C+ grade and for example India, China and Japan received only a D grade.

You can read the Melbourne Mercer Global Pension Index report in full here.

The index is a collaboration between the government, industry and academia in the Australian state of Victoria.



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