Private versus statutory pension provision in germany

Senior citizens in Germany have a lot to spare, especially the formerly self-employed and senior civil servants do not have to live in poverty in old age. While entrepreneurs often have to live off their savings in retirement, other senior citizens can leave their assets largely untouched.

Germans have made provisions for old age – mostly in the form of residential property, securities, life insurance and savings deposits. At least, that's what a look at the assets of the population beyond the legal retirement age shows. Even among unskilled workers, each retiree has an average net worth of 67.000 euros, although there are large deviations upwards and downwards.

Higher qualifications in working life, higher wealth in old age

For all working groups, the rule of thumb is: the higher the qualification and function during working life, the higher the wealth in old age. Former senior executives, for example, have an average pension of almost 177.000 euros – higher assets are found among ex-civil servants in the upper and higher civil service, lower among civil servants in the lower and middle civil service.

The group of over 65-year-old entrepreneurs has the highest assets – in 2012, the average was just under 330.000 euros.

Nevertheless, there is no reason for social envy. On the one hand, entrepreneurs often run their companies according to their 65th percentile. Birthday continues – and since the business assets are included in the statistics, these entrepreneurs differ significantly from their peers who are already retired. In addition, most self-employed persons are not covered by the statutory pension scheme, but have to organize their retirement provision privately. Your reserves are therefore used for retirement provision.

Considering that after 45 years of contributions, the average wage earner in West Germany currently pays 1.287 euros and 1.If an entrepreneur receives EUR 187 from the pension insurance fund in the new federal states – for the rest of his or her life – then the entrepreneurs' reserves become relative.

The fact that assets serve as a personal retirement fund for the self-employed becomes even clearer when one looks at the development of net assets over a lifetime. Accordingly, the self-employed build up the highest net worth by the time they reach the standard retirement age – the median reaches almost 250.000 euros. This is more than twice as much as for a senior executive. Beyond the age of 65, however, the assets of ex-entrepreneurs dwindle much faster: in the first decade of retirement, the assets of a former entrepreneur are reduced by a whopping 70.000 euros, but that of a department head only by 7.000 euros.

In contrast, assets tend to be preserved in old age among the self-employed without employees. One reason is that this group also includes those freelancers who are covered by a professional pension scheme. As a result, they have to rely less on non-cash and cash assets in old age to cover their living expenses. This applies, for example, to lawyers and doctors.

Retirees who have worked in the higher civil service can likewise maintain their comfortable asset position in most cases, while former civil servants in the lower and middle civil service are much more likely to have to go down to the wire. A similar picture emerges for skilled workers. The less prominent the occupational status in working life, the more the assets will dwindle in old age – for example, because a smaller pension will not be enough to maintain the standard of living.

As part of the Socioeconomic Panel, households are surveyed in detail about their assets every five years, most recently for 2012. The IW researchers added up the data on business assets, real estate assets, life insurance policies, financial investments and account balances for each household. Net wealth per adult is obtained by offsetting mortgages and consumer loans and dividing the result by the number of adult household members.

Whether the people with their net worth belong to the group of civil servants, employees or self-employed depends on the employment status of the head of the household – that is the household member with the highest contribution to the joint income. In the case of retirees, this assignment is made according to the most frequent or last employment status.

In addition to the average assets, the median is also reported in many cases. All assets in the respective groups are sorted in ascending order – the value right in the middle then serves as the reference value. This makes sense for the breakdown by age groups and labor force groups, because it makes the number of cases smaller and the average value distorted by outliers.