Less private provision: Dad takes care of the pension

Status: 23.10.2021 3:17 p.m.

Pay for the first room in a shared apartment, buy sneakers, go party – and save up for retirement? Those who are young do not think about old age. In the future, private provision will be more important. But the trend is in a different direction.

40 years – in that time we buy an average of four new cars, drink 33,000 cups of coffee and spend more than eight years at work. So there is a lot ahead of her before Fabienne Pansa retires. And yet the 28-year-old looks at her monthly pension notification: “It just says that I will get 250 euros a month later. Sure, that will be even more, but in comparison it is nothing.”

Security would be provided by private old-age provision, she says herself. “But I don’t trust investment advisors and sellers that much. If you’re lucky, your parents have taken care of it or you have a friend in your circle of friends who is familiar with it.” If you are lucky, there are fewer and fewer of these friends.

Two trends, one problem

A study by the employers’ association Gesamtmetall and IG Metall shows: In the past decade, the interest of 17 to 27-year-olds in private pension savings has decreased. In 2010, 55 percent of young people saved, in 2019 it is 48 percent. This year, only 19 percent of 16 to 26 year olds say they have already taken out a pension contract, as a recent study shows.

According to Gesamtmetall, four out of five young people think that a good pension is possible if politicians really want it. But the political reality seems to be different. An increasing average age in Germany is throwing the intergenerational contract out of balance. Sixty years ago, for example, six employees financed a pensioner, whereas today there are only three.

To compensate, more money has to be contributed from the federal budget. If the pension level remained the same at 48 percent, more than twice as much money would be required from the budget in 40 years. If the retirement age is not increased to 68 years, the Scientific Advisory Board of the Federal Ministry of Economics sees the statutory pension heading towards a “financing shock”.

Retirement starts at school

The chairman of the Scientific Advisory Board, Klaus M. Schmidt, considers private provision to be essential: “The statutory pension has always been just one pillar of old-age security.” So if you want to be sure that there is still enough money in old age, you have to save privately.

Like Fabienne Pansa, there are many people in their 20s: “Nobody tells me to do something – and then I forget about it again.” A task that, according to Klaus M. Schmidt, falls into the hands of the government: “We should teach young people better basic knowledge of capital investment, starting at school, but above all in training and studying.”

The subject of retirement is unpopular. In school, but also in politics. “None of the parties represented in the Bundestag honestly tell the citizens what problems the statutory pension insurance system will face. We must now begin with reforms that will be painful,” says Schmidt.

The interest in finance is actually there

Young people are interested in finances. Emerging trading apps make it easier to go public. In 2020, almost 600,000 people under the age of 30 bought stocks, funds or ETFs for the first time – an increase of almost 70 percent. The economics professor Schmidt thinks: “That’s good, as long as you don’t allow yourself to be seduced into gambling.”

A regular savings plan in an international ETF through a direct bank is ideal. “Even if you start with small amounts, it grows so quickly, and with interest and compound interest, a considerable amount of money comes together over time. You can also use this to invest in home ownership, one of the best forms of retirement planning.”

Schmidt’s favorite tip comes from Nobel Prize winner Richard Thaler: simply pay a fixed percentage of the salary increase into a savings plan. “Since the money comes from a raise, you don’t have to limit yourself. That makes it easier for everyone.”


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