'Rentenversicherung' is not a money-maker

Published on: 5 November 2021

Retirement abroad episode 1: Germany

The second-best pension system in the world. That’s what we have in the Netherlands, according to the annually published Mercer CFA Institute Global Pension index, which includes 43 countries. Are other countries doing that poorly? Each week, for ten weeks, we will delve into the system of a specific country. For the first episode, we start close to home: Germany, which Mercer ranks 18th.


Like ours, our Eastern neighbors’ pension system rests on three pillars, the first of which is pay-as-you-go funded. I.e., employees collectively pay for the old age of the pensioners - comparable to our Old Age Security. Employer and employee each pay half of the premium. But unlike our system, the German pay-as-you-go system consists of two components. The first is a system where employees accrue pension points based on the number of years worked and the premiums paid. More points means more pension. The second component consists of a low-level minimum pension, as a safety net for people who have not worked or have worked very little. In the Netherlands, by contrast, the first pillar consists of fixed Old Age Security payments for everyone. In the second pillar, employees are obligated to save for a supplementary pension through an industry or company pension fund. And in the third pillar - the private Altersvorsorge - people can take out supplementary insurance on a voluntary basis, for example through an annuity policy.


Under pressure

Unlike in the Netherlands, the German state pension accounts for as much as 80 percent of the total pension sum. And because the ageing population means that ever more pensions have to be paid for by ever fewer employed people, the sustainability of the German system is under pressure. The same applies to our Old Age Security, but here the average employee relies much more on his or her supplementary pension, accrued through the employer. And because this second pillar is not financed on a pay-as-you-go basis but is capital funded (where the employee builds up his own pension through a pension fund), the Dutch system is much less vulnerable to an ageing population than the German system. 


Until 2029, the retirement age will be raised by one month each year (two months from 2024 on), eventually reaching a retirement age of 67. In reality, Germans stop working on average at 64. Men enjoy an average of 19.1 years of retirement thereafter, women an average of 22.5 years. Germans pay about 19 percent of their gross monthly salary in contributions for the state pension - the Rentenbeitrag. The government does not add any more money to this.


Assistance level

In Germany, the more you earn the more you pay, but the amount of your pension also depends on your salary. The bigger your salary, the bigger your pension. For most people, however, this is not very much: the average payment from the Rentenversicherung is currently around 1,200 euros. And that’s optimistic because a significant number of Germans receive pensions below the minimum income. By comparison, in the Netherlands, the Old Age Security for partners is 838 euros per person (net) and 1227 euros for a single person. But often the self-accrued pension is added to this: according to the CBS, only 6 percent of Dutch pensioners receive 250 euros or less in supplementary pension per month.

Last year, Germany announced the introduction of the Grundrente, a basic pension for the lowest incomes. Elderly people who have worked for 33 years or more and nevertheless have a pension below the welfare level receive a supplement of up to 405 euros a month.

The German pension system: Facts & figures


Rating in the Mercer CFA Institute Global Pension index 2021: B-Grade (“A system with a solid structure and many good features, but has a number of areas for improvement that keep it from being in the A-grade category.”).

System:              three pillars

Financing:         partially pay-as-you-go funded, partially capital funded

Median pension: 50% of average wage income, of which 37.5% is through first pillar (pay-as-you-go funded) and 12.5% through second pillar (capital funded). Median means: half of the pensions are less than 50% of the average wage income and half of the pensions are more than the average wage income.


Average pension first pillar:                   1200 euros

Average pension second pillar:              400 euro

Adequacy (Mercer rankings):                 5th       

Tenability (Mercer rankings):                 21st

Integrity (Mercer rankings):                   4th