Old age is for later – all the more rea­son to act now

After improving occupational pensions, it is now time to reform private pensions. The Riester scheme must become simpler, more effective, and more widespread. Insurance companies and other providers have a five-point plan:

1. Introduce attractive and easy-to-understand subsidies: for every euro paid into the pension account by the insured, at least 50 cents will be paid in as a subsidy;
2. Make subsidies available to everyone, as everyone is affected;
3. Employ a “check first and then pay” approach to allowances in order to avoid reimbursements;
4. Relax the “return of premium” guarantee to increase the chances of generating higher returns and pensions;
5. Create simple standardized products – with private providers.

A sovereign wealth fund is not needed to reform private pensions. This is because there is a clear division of tasks in the area of pensions, with one area covered by the state pension and the other by the occupational and private supplementary systems. The state is only directly responsible for the first pillar. It sets the legal framework for the other two pillars and leaves their organisation to the social partners and private providers. If you are committed to the social market economy, you have to accept its rules. The legislator that sets these rules must not be exempt from them. This is why models with sovereign products, such as “Extrarente” (extra pension) or “Deutschlandrente” (German pension), where the state acts as a provider of pension products, are not sustainable.

A “uniform solution” would not meet the pension needs of the self-employed, as their individual lifestyles and business models vary too much. The planned security obligation (Sicherungspflicht) takes this into account, leaving room for individual solutions by offering different options. It also sets out minimum criteria that are particularly important for this target group. The “Basisrente” concept (basic pension) meets these requirements – and even goes beyond that: it offers exemption from garnishment, is protected when drawing ALG II (Unemployment Benefits II) and also provides a lifelong retirement income.

Life expectancy in Germany currently rises by one to two months every year and has thus increased by three years since the turn of the millennium. It goes without saying that everyone does not benefit from this trend equally. One thing is certain, however: an ever-increasing number of people are making it to the “65plus” and “85plus” age groups – and they are often in better physical and mental condition than their parents were when they reached the same age. What is our society doing with these extra years? We have to hold a rational debate about what constitutes an acceptable and sustainable balance between working life and retirement in order to help ensure the sustainability of the statutory pension.

The statutory pension is the main source of income for a great many people. However, most people do not rely on just the state alone – 75% of employees in the west and 65% of employees in the east also have an occupational pension, private pension provisions, or both. What’s missing is an overview of all the different sources of retirement income for citizens. Insurers are working with the federal government in making individual future retirement income transparent. Practical suggestions have been made. The pension information across all three pillars could – with strong political support – be introduced quickly: by a joint institution in which the providers have a voice in the decision-making process, as well as by the use of the tax ID.

Our healthcare system is one of the best in the world. As a competitor to statutory health insurance, private health insurance is a key innovation driver within the system. The higher fees for privately insurance patients enable investments in modern equipment and methods by healthcare providers. This also benefits patients with statutory insurance. Furthermore, only the PHI makes provisions for the rising healthcare costs incurred in old age and is thus fair to all generations. To date, the PHI has built up over EUR 270 billion in old-age provisions. These will make a massive contribution to investment volumes and thus to prosperity in Germany.

The cost of long-term care will increase massively in the future. In 20 years, there will be around 4.4 million people requiring care, almost a third more than today. This is why it is so important that everybody make individual provisions through private supplemental long-term care insurance. These policies are available at reasonable prices, and they build up reserves, which can then be used to close any potential financing gaps in care. This sustainable solution should be used as the foundation for a “new intergenerational contract”. With this solution, more people would set up their own retirement provisions and in doing so stabilise long-term care insurance over the long term.