Pensions – where do we stand today?

The pension adequacy report addresses two key questions: are pensions – both now and in the future – adequate for maintaining living standards and can they prevent poverty in old age?

Following a decline in poverty and social exclusion amongst older people (in terms of lack of access to basic goods), there has been a slight increase in levels to 18.5 per cent over the last three years (up to 2019) throughout the EU. The level in Germany is slightly higher than this. At the same time, the income level (median income) for older people has fallen slightly in relation to that of younger people since 2016. It was 89 per cent in 2019. If we look at the so-called “aggregate wage replacement rate”1, the EU average is only 57 per cent. Germany, at 44 per cent, is even lower in this respect.

Low retirement incomes are often the result of low earnings and interrupted working careers. According to the report, minimum and basic benefits can make an important contribution to adequacy here. Some Member States have already developed these elements during recent years.

Old-age poverty is often also female-related. The gender-based “pension gap” is still 29.5 per cent (2019). However, it has still fallen by 2.8 percentage points since 2016, and it has also decreased in Germany. Model calculations from four countries show that the pension gap will narrow significantly by 2050 due to career changes.

It is also interesting to note that the length of retirement has shortened in many countries: The retirement age is rising faster than life expectancy. An average of 40 years are now spent actively and 20 years are spent in retirement in the life cycle.