Understanding the German Pension System as an Opportunity for your Fund Raising

Knowledge for getting the most from the advinda Premium goGermany Pension & Insurance Package.

Population: 80.9 million

Pension system design

Germany’s pension system is:

  • based on a strong public pension pillar (main pillar), accompanied by
  • additional voluntary occupational and/or
  • private saving schemes

In the past individuals relied predominantly on pension benefits provided by the statutory pension insurance. With the demographic challenges ahead this pattern is beginning to change and private precautions gain more and more importance.

Public pension: statutory for majority of employees

  • pay-as-you-go system financed by employees, employers and governmental subsidies
  • contribution rate is equally shared between the employee and the employer with a contribution assessment limit being occasionally changed by the legislator (2017: € 76,200 p.a. in Western counties, € 68,400 p.a. in Eastern counties)
  • people who have a higher income, run their own business (freelancers, entrepreneurs) and people working in so-called “free professions” (e.g. architects, lawyers, dentists) are not obliged to, but can voluntarily join
  • pension entitlement is based on the number of contribution years, the average level of income and the retirement age

The legal retirement age: changed from 65 to 67 for both men and women with a transition period running since 2012 until 2029. Exemption for persons with a contribution record of at least 45 years: they are still allowed to retire at 65.

Voluntary occupational pensions

On average about 50% of all employees have access to occupational pensions in Germany whereas it is mainly the public service providing such supplementary pension coverage for their employees. At private companies distribution depends on the company size and industrial sector and varies a lot. The following funding vehicles can be chosen:

  • Direct grant (“Direktzusage”)
    • usually funded via book-reserve accruals; the employer gives a promise to the employee to pay him a certain amount once he retires
  • Direct insurance (“Direktversicherung”)
    • employer takes out a life insurance policy on behalf of the employee and pays contributions to the contract
  • Pension company (“Pensionskasse”)
    • main pension vehicle for private employer-sponsored pension provision after the direct pension promise
    • special insurance companies that serve one or several employers
  • Pension fund
    • Can be either formed as a joint-stock company or a mutual pension fund association
  • Support fund (“Unterstützungskasse”)
    • separate legal entities set up as an association, less frequently as a limited liability company, or as a foundation

Private pension

Private pension investments equivalent to: 6.6% of GDP (2015)

Private pension assets 2015: $ 218,473.2 million USD (all forms of private investment with a value associated to a pension plan over which ownership rights are enforced by institutional units, individually or collectively. This indicator is measured in millions of USD; source: OECD)

Pension funds’ assets 2015: $ 218,473.2 million USD (assets bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits. The pension fund is a pool of assets forming an independent legal entity. This indicator is measured in millions of USD; source: OECD)

Net pension replacement rate 2014: 50.0% (individual net pension entitlement divided by net pre-retirement earnings; measures how effectively a pension system provides a retirement income to replace earnings. This indicator is measured in percentage of pre-retirement earnings by gender; source: OECD)


The Organisation for Economic Co-operation and Development (OECD) – http://www.oecd.org

Bundeszentrale für Politische Bildung – http://www.bpb.de/politik/innenpolitik/rentenpolitik/223145/empirische-befunde