Update from our Germany Office

by Alexander Beard, on Jan 24, 2018 11:53:57 AM

The OECD has published the "Pensions at a Glance 2017" - report. Looking into the report on Germany one has to state that Germany’s pension system is not bad, but old- fashioned. The replacement rates (net) are expected to remain below the OECD average, in particular for low earners (55% vs 73%). Missing basic and minimum pensions will lead to having low earners (~ 20%) in the social net.

For those who will have a 45 years’ history of work in an industry that had done well over the past 5 decades: all will be in order – even with a replacement rate lower than OECD average (51% vs 63%). However more and more people will not have a stable and straight forward looking history. The change of an employer might be happening, because globalization made it possible, that the former employer had been sold, or the products had not been needed anymore. Or the individual qualification gave new opportunities in different areas, subjects or regions. Or the family became larger / smaller and the need for less/more work made a change necessary! Women today suffer from the largest pension gap among OECD due to working part time and/or in low income sectors.

Germany has lifted the employment rates of older workers – people have recognized that the life expectancy had grown and the level of income @retirement did not look very promising. Working longer will help people to improve financial stability for the enlarging group of older people.

The dynamic German state – pension system from 1957 will need more reforms. And maybe a look over the Channel could be a help: Automatic Enrolment (with Opting Out) is not yet installed as a legal requirement in Germany – however there are possibilities that an employer could install such a system for his company. As there is not yet a new government installed for Europeans largest economy we need to stay in patience, but using the options that are already given.

In 3rd quarter 2017 there had been more working hours registered than ever before. More people had found work- unemployment rate came down. This development is very positive. However more and more employers are in a search mode for finding new employees to fulfill their strategies for more growth. Germany is not the only country that uses advantages from a low interest rate (Germany began to reducing its deficits where other countries still have increasing debts- US as a very bad example) and low €uro for its exports. Other countries made less progress in changing their industries. The reason is not only that Germany is just lucky- Germany had done some reforms before others had started to create an employment market with more flexibility. The Flexi Law II for example offers to use over- work for a later sabbatical or to get retirement started a bit earlier. Employers and employees can both profit from new solutions for “time accounts”. We can help employers to install solutions that will be in lines with the law.

The implementation of a new “Retirement at 63” from the Social Democrats during the last legislation period will not increase the incentives to work longer as it provides a full pension at age 65 rather than 67. We will see whether the next government will make better reforms.

All in all politician and economic leaders will need to overcome the challenge of a fast ageing population. The paradigm shift needs to go into a direction where companies pro-actively will need to help their workforces building up an additional pension. Matching systems that are common practice in other countries worldwide will become more and more standard. Depending on the industrial branch it will differ, however without the support from the employer employees in professions with skills shortage will select the employer of choice who will have the more attractive package, including well payment of course, however also with an attractive pension plan offered.

We will help clients to find these attractive packages for their companies!

Rüdiger Blaich
Country Manager - Germany (AB International Benefits B.V.)