(de-news.net) – The Federal Republic is facing significant challenges in retirement provision, according to a recent study by the Council of Experts for the Assessment of Overall Economic Development. The analysis, entitled ‘A Fresh Start for Private Retirement Savings: Towards a Sustainable Pension Fund for Germany’ highlights demographic pressures as the baby boomer generation retires, reducing the workforce while increasing the number of pensioners. This imbalance places growing strain on the statutory pay-as-you-go pension system, which in turn results in either higher contribution rates or lower pension levels.
Private savings behavior remains inefficient, with large portions of assets held in low-yield deposits or non-interest-bearing cash. As a consequence, households—particularly those with lower incomes—struggle to build sufficient wealth for retirement. Against this backdrop, the Council has presented a working paper that proposes a comprehensive reform of private retirement savings. The Riester pension, once introduced as a major reform, has failed to meet expectations. It is now associated with poor returns, high fees, and excessive bureaucracy, leaving millions of contracts dormant. With confidence eroded, the Council calls for a fundamental reorientation of private retirement savings.
International models such as Sweden’s premium pension and Britain’s workplace pension serve as inspiration. Both systems rely on automatic enrollment with opt-out provisions, ensuring broad participation across income and education groups. These examples demonstrate that coverage can be expanded while maintaining flexibility for individual circumstances.
At the core of the German proposal lies a lifelong retirement savings account. This account would accompany individuals from childhood through working life and into retirement, with contributions automatically transferred from early savings schemes. Automatic enrollment of all working-age persons would significantly increase participation rates. Administration would rely on existing structures such as tax identification numbers and the Central Allowance Office for Retirement Savings. Employers would contribute directly to the accounts, while allowances would be automatically credited. Contribution levels would be aligned with current Riester savings rates.
The investment strategy emphasizes higher returns through diversified UCITS funds and European Long-Term Investment Funds. Capital guarantees, common in insurance products, are deemed unnecessary and costly over long horizons. By focusing on equity-based diversification, savers could achieve stronger pension incomes. To avoid choice overload, the Council recommends a structured procurement process modeled on Sweden. An independent fund selection agency would oversee the range of available funds, limiting the number to a manageable selection of high-quality, low-cost options. This approach would enhance transparency, reduce fees, and rebuild confidence in capital market investments.
The standard product would follow a life cycle model, shifting from higher-yield funds in earlier years to lower-risk funds closer to retirement. Simple enough for online purchase without consultation, it would minimize distribution costs. Those not making active choices would be assigned a state-managed default product. Flexibility in payout options is also emphasized. Upon retirement, individuals could choose between lump-sum withdrawals, partial payouts, or annuities. Assets would remain individually owned and inheritable unless fully annuitized.
Finally, the Council highlights the integration of company pensions and existing Riester contracts into the new framework. Employers, including small firms, could contribute via salary conversion, while existing contracts would be protected and transferable. The proposal aligns with European Commission recommendations for greater transparency and pension dashboards.
