Retirement saving: Stop deluding yourself

It is time to act, says Alexander Erdland. Policy makers, insurers and citizens have to wake up to the fact of decreasing retirement income

Alexander Erdland

We Germans, like the citizens of many nations, are fooling ourselves. We know we have to save for retirement. We know the state pension won’t suffice. And yet too many of us do too little to prepare financially – and this includes those who can afford to save.

The paradox can also be seen at the political level. Even as policy makers lecture us citizens on saving for retirement, they thwart every effort to do so. Reforms are being rescinded, putting even greater pressure on future pensions. Low-income earners can watch from the sidelines as the little they have put into private savings is deducted from their basic social security benefits. And while savers are losing billions as a result of the current low-interest-rate policy, the German government insists on calculating its pension forecasts on the assumption of a four percent return.

Let’s stop fooling ourselves! Citizens, companies and politicians all need to take action. As insurers, we must reduce costs, make our products simpler and easier to understand, and give people better advice. However, the most critical measures needed to break this vicious cycle can only be implemented with support from policy makers.

The first step would be to start off by being completely transparent. We need to introduce a simple, one-click, web-based platform that would allow people to calculate their retirement income from their statutory, occupational and private pensions. Similarly, the German government is well advised to make more realistic assumptions about the future and adapt its policies accordingly.

Stop punishing low-income groups

Since, for example, state incentives for the Riester Rente, a private saving scheme designed to make up for the shortfall in the state pension, have dropped by almost 25% against individual savers’ contributions. It is time that the government stopped deducting private pension payments from basic social security benefits. Rather than being rewarded for saving, people are being punished and low-wage earners are discouraged from setting money aside.

But the onus is also on us, the insurance industry, to work with politicians and make Riester simpler and better. Targeted relief is necessary to close the growing provision gap for people of medium income, who should not be taxed on their own pension arrangements. This approach is in keeping with the spirit of rulings handed down by the Federal Constitutional Court.

Expanding occupational retirement benefits has reached a sticking point, particularly at small- and medium-sized companies. Additional, expensive and complicated instruments are of no use here. Instead, we need to simplify the tools already available to us. Low earners, for example, could be supported with a lump-sum subsidy.

Some results can be achieved through simplification – others will cost money. However, there is financial room to maneuver. Since, the German Finance Minister has been able to save €105 billion as a result of low interest rates. Passing some of this relief on to savers would be both fair and socially responsible. If budget surpluses can be invested in roads and electricity networks, why can’t money be invested in people?

For more insights into the German pension scheme, download the study What’s happening in Germany?

Retirement saving: Stop deluding yourself

It is time to act, says Alexander Erdland. Policy makers, insurers and citizens have to wake up to the fact of decreasing retirement income

Alexander Erdland

Retirement saving: Stop deluding yourself

It is time to act, says Alexander Erdland. Policy makers, insurers and citizens have to wake up to the fact of decreasing retirement income

Alexander Erdland

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