In Germany, the statutory pension insurance and private retirement provisions are central topics for long-term financial security in old age. While the statutory pension provides basic coverage, more and more studies are showing that many Germans have a significant "pension gap" — the difference between what they will need in retirement and what they are likely to receive from their statutory pension. But how can this pension gap be closed, and how is it reflected in the pension statement of an employee?
What is the Pension Gap?
The pension gap refers to the difference between an individual’s current income and the expected pension benefits from the statutory pension insurance. According to a study by the German Pension Insurance (Deutsche Rentenversicherung), many people in Germany face a pension gap, primarily due to the limited amount of benefits from the statutory pension system. This gap arises when a person’s income during their working life is low in comparison to the level of pension benefits or when insufficient private retirement savings are accumulated.
A simple example: An employee earns 3,000 € net per month during their working life. When they retire after many years of work, their statutory pension might only amount to 1,500 €. The pension gap of 1,500 € per month would need to be covered through private retirement savings or additional sources of income to maintain the desired standard of living in retirement.
The Pension Statement: Insights into Individual Retirement Benefits
The pension statement is the central document that provides information on the expected amount of the statutory pension. Every year, employees who are insured under the statutory pension system receive this statement from Deutsche Rentenversicherung, which shows the current pension entitlements as well as an estimate of the future pension. The statement not only informs about the status of previous pension entitlements but also provides a forecast of the expected pension based on past contributions and anticipated future contributions.
Key Components of the Pension Statement
A typical pension statement for an employee includes the following information:
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Insurance History: This section lists all the periods during which an employee has been insured in the statutory pension scheme. It includes years of contributions as well as periods such as unemployment or child-rearing, during which no contributions were made.
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Entitlement Points (EP): These points reflect how much has been contributed to the pension fund. For each year in which an employee reaches a certain income level, a number of entitlement points are awarded. One entitlement point corresponds to the average income of an employee in that particular year. Those who earn more receive more entitlement points.
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Projected Pension Amount: The statement includes an estimate of the monthly pension an employee can expect to receive upon reaching retirement age. This amount is based on the number of entitlement points accumulated and the current pension value.
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Various Types of Pensions: The pension statement may also contain information on different types of pensions, such as old-age pensions, disability pensions, or survivor pensions.
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Pension Claims from Supplementary Insurance: In some cases, the statement also includes information about private or occupational pension claims, if these are coordinated with the statutory pension system.
How Can the Pension Gap Be Closed?
The statutory pension alone is often insufficient to close the pension gap. To maintain the standard of living in retirement, employees should start thinking about private retirement provisions early on. There are various options available to help address this gap:
- Private Pension Insurance: An additional private pension insurance can provide a regular income in retirement.
- Occupational Pension Scheme: Many employers offer their employees an occupational pension scheme, where contributions are either deducted directly from the salary or the employer contributes additional amounts.
- Riester and Rürup Pensions: These state-subsidized retirement products offer tax benefits and are a way to reduce the pension gap.
- Capital Investments: Many people invest in stocks, real estate, or other financial products to build wealth that will be available to them in retirement.
Conclusion
The pension gap is a significant challenge for many employees in Germany and should not be underestimated. While the pension statement from Deutsche Rentenversicherung provides an initial estimate of the expected pension amount, this alone is often not enough to maintain the desired standard of living in retirement. Therefore, it is important to think about private and occupational pension plans early on and regularly review pension entitlements to close the pension gap. Only in this way can financial security in retirement be ensured.
