WWhen it comes to income in old age, Germany is far from the top of the table in various categories: A low home ownership rate and a low proportion of equity investments result in a bottom place in the asset comparisons of large financial service providers. Switzerland, the Netherlands and Scandinavian countries depend on Germany in many areas.
In 2021, the average German had assets of $257,000. According to figures from the Swiss bank Credit Suisse, that was $169,000 less than the average Dane had. The distance to the Netherlands, Sweden and Belgium is also large. There are various reasons for this: some are due to the old-age provision system, others have to do with different investment mentalities. In addition to the German reluctance to build home ownership, the aversion to shares is generally known. As a result, the German investor forgoes a large part of the compound interest effect, which leads to high capital growth with higher average returns and longer maturities.
Too little home ownership
The German pension system rests on three pillars: the statutory pension is by far the most important source of income in old age for most people. Because it is designed as a contribution, in which today’s employees pay for current retirees, it is sensitive to demographic change, which is characterized by a falling number of contributors and which will reach a temporary peak when the baby boomer cohorts enter retirement in 2030 becomes. Employers and/or employees pay into the company pension scheme with benefits in terms of social security contributions and at low cost. In private old-age provision, there are some complicated subsidy systems and models that have been particularly strained by the zero interest rate.
In Germany, the legislature makes a relatively strict distinction between old-age assets and old-age provision. Forms of investment that generate reliable, regular payments in old age and are documented by status notifications are considered to be pension plans. That is why real estate and investment funds are not included in a cross-pillar digital pension overview from Deutsche Rentenversicherung, which is due to start next year – although they make a significant contribution to wealth creation.
Private saving for old age is currently struggling with an additional problem: inflation. For years she played no role, but in the past two years she has come back with force. The inflation rate was more than 10 percent in a few months, on average it was 7.9 percent in 2022. It could be a little lower this year, although many economists are still expecting a hefty 6 to 7 percent.
For savers, such high rates of inflation mean that the real value of the money in a current account or a savings account with low interest rates melts away over time. Nominally, i.e. in terms of amount, the money in the account remains the same even with inflation – but the purchasing power falls. Many people in Germany have lost sight of that. According to Bundesbank figures, there are a whopping 2.2 trillion euros in giro and money market accounts in Germany.
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