Is the pension secure? These are the seven mistakes in retirement planning 2024-04-10 13:55:35

Since the beginning of the 1990s, however, the ratio of contributors to pensioners has deteriorated. While in 1965 5.5 contributors financed a pensioner, in 2021 there were only 2.1 contributors. This will get worse in the coming decade. The tax subsidy will increase and contradict the statement that the pension is secure because the federal budget will be placed under enormous strain and future investments will not be made at the expense of the supposedly secure pension.

This leads to the second error, which can be shown in the same graphic: pension policy looks at everyone. With the decline in the number of contributors per pensioner, pension increases were slowed down at the beginning of the millennium. Today, the pensioner generation represents the largest group of voters. It is difficult to pursue politics against them. The fact that the sustainability factor should be withdrawn is a decision for voters whose pension levels should remain stable. It leads to higher contribution rates that younger voters have to pay and makes the work more expensive. Given the robust labor market, this appears to be negligible for politicians.

The next error needs to be viewed in more detail: the retirement age cannot be increased. Mathematically, it is completely clear: the number of pension years to be financed is increasing because people are getting older. The number of years of pension receipt has doubled since the 1960s. An increase in working life seems therefore necessary. At the same time, age sets limits for physical activities and shift work, which should encourage social partners to humanize work in old age.

Capital coverage only makes financial salespeople rich is the next misconception. The subsidized private pension provision is too expensive and too unproductive. There are reasons for this, for which private providers can do little: Unlike other countries, the red-green government did not make the subsidized pension mandatory, and financial distributors came into play. The model is also rigid and bureaucratic. Investors actually lost money during the low interest rate period. In other countries, pensioners invest more in productive power.

In this country, the second and third pillars of pension provision, company and private provision, are based on a significant error: guarantees provide security. While Sweden adopted equity-based pension provision with its partially funded pension in 1999, the subsidized pension in Germany should be close to the statutory pension. Contribution guarantees cost returns because providers chose conservative strategies. The Frankfurt financial economist Olaf Stotz compared an investment portfolio with a guarantee (and a high proportion of bonds) with an equity-based one over a typical retirement planning horizon of three decades. The risks level out over the decades, but the expected return of the stock portfolio is higher than that of the bond portfolio in the long term – and generates average guarantee costs of 4.84 percentage points.

Another country that many consider to be a role model relies even less on capital funding. The next misconception: Austria has the most stable system: Many people like the model there because it has high wage replacement rates and because almost all employees pay in. But as consultant Mercer’s pension ranking shows, it is underfunded. With a quarter of the total budget, Austria has a higher pension subsidy from tax revenues than Germany. The contribution rate is above average at 22.8 percent.

Real role models are less discussed: Scandinavian countries and the Netherlands with one of the most robust pension models in the world. There, pensioners receive almost their former salary in retirement from basic pensions, company and private pension schemes. These countries are open to stocks and refute the last thesis: stocks make you poor. According to the UBS Global Wealth Report, the Austria discussed is behind Germany, which is also weak, when it comes to wealth in old age. Countries that rely more on stocks for retirement provision perform significantly better.