The German pension system ranked 19th, placing it roughly in the middle of the list of the best countries. For almost 15 years, the human resources company Mercer collaborated with the Chartered Financial Analyst (CFA) Institute on ranking pension systems worldwide.
Related topic: New income tax for retirees in Germany: Prospects
They assess which pension systems globally are better and more sustainable than others. This year, the pension systems of 47 countries, accounting for 64% of the world's population, were evaluated based on crucial criteria.
The German pension system secured a satisfactory position in the global index
The assessment considered essential indicators such as:
- Adequacy (Evaluating benefits);
- System design;
- Savings;
- Tax support;
- Homeownership;
- Growth assets.
As well as sustainability, analyzing total assets, contributions, demographics, government debt, and economic growth.
Another crucial criterion was the integrity of the pension system:
- Evaluating regulation;
- Management;
- Protection;
- Communication;
- Operational expenses.
Ratings in each category contribute to the final aggregate score assigned to a country. Each criterion carries a different weight in forming the ultimate assessment. For example;
- Adequacy constitutes 40% of the final score;
- Sustainability 35%;
- Integrity 25%.
Based on a total score out of 100, each country receives a grade from A to E, with A awarded only to countries scoring 80 or higher. Mercer ranked the Netherlands as having the world's best pension system, with all categories receiving an "A" and an overall score of 85.
- Iceland, Denmark, and Israel complete the top four as the only countries with a "first-class and reliable pension system".
- Conversely, Thailand, Turkey, the Philippines, Argentina, and India occupy the lower part of the list.
It was found that pension systems in these countries have "some desirable features" but also "serious shortcomings and/or omissions that need to be addressed".
The current German pension system received a score of 66.8 from Mercer, placing it on average 19th out of 47.
The German pension system combines a pay-as-you-go system, where the working population pays for pension benefits, with supplementary pension plans. In these schemes, individuals (either independently or through a professional scheme) contribute funds to pension plans.
The level of income throughout the working life also influences the size of pension payouts. Monthly payments constitute 70% of net labor income.
These various models make up the three pillars of the German pension system. In its assessment of the German pension plan, Mercer suggests that the government improve all key indicators by increasing the minimum state pension.
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In light of the evaluation, the German government might consider enhancing the minimum state pension to strengthen the German pension system, aiming to improve its rank in the global index. During retirement, retirees in Germany might need to manage their finances carefully due to the potential impact of income taxes on their retirement income.
