The Retirement and Pension
System of Germany
Insights from the German Retirement and
Carsten Weerth, Bremen/Germany, Team Europe
Stanford University – The Finance of Retirement & Pensions
Conclusion of the German Pension System
The task was to conclude which elements are
part of the German Retirement & Pension
In particular new political ideas shall be made.
Since this is a global MOOC from Stanford
University we should be open to global
This team Europe has been formed in order to
research Germany's pensions system.
• Germany is a member state of the European
Union which consists out of 28 Member
• The pension systems are not harmonized
therefore the national member states are
• In Germany there are four major different
4 Different Pension Systems
• I. State pensions for officials and soldiers
• II. Pensions by a common system for all other
• III. Transfer payments for all other (poor)
• IV. Private pension systems such as RürupRente and Riester-Rente
System I – State Pensions
• State pensions are paid by help of taxes. The former
officials and soldiers receive 71.75 % of their last
monthly payment per month by help of a tax funded
pension. The federal state government or state
government is in charge of having enough money for
paying the pension. No bond has been set up before.
• For details see URL: http://de.wikipedia.org/wiki/Pension_(Altersversorgung).
System II – General Pensions
• Pensions by a common system for all other
employees (so called Rentenversicherung, see
nversicherung_(Deutschland)) which are paid for by
half from the employee and by half from the
employer (so called mini-jobs are not included these mini-jobbers are employed for less than 450
Euro per month).
• These funds are managed by help of bonds,
equity and stocks that are traded on the market.
System III – Transfer System
• The transfer system is again paid by help of
taxes and it only represents a basic allowance
which is considered to be the minimum life
allowance to support a family.
System IV – Private Systems
• Other private insurance systems are the so called
Rürup-Rente (Life insurance for 12 years which
stays tax free, see URL: http://de.wikipedia.org/wiki/R%C3%BCrup-Rente) and Riester-Rente (Life
insurance up to the age of normal entry into
pension (67 years) which receives annual additional funds from the state (e.g. 300 Euro per year
as an incentive), see URL: http://de.wikipedia.org/wiki/Riester-Rente.
Conclusions & Recommendations I
• The state pension system for officials and soldiers is
fully tax funded. It is of the utmost importance that
the federal state and the single (16) states prepare
for the pensions that they are going to pay in 40
years future time. That has not been done in the past
and must be made from now on.
• The pension system for all other working persons is
funded half by the employers and half by the
Conclusions & Recommendations II
• Mini-jobs (under 450 Euro per month) are not paying for
the normal pension system. These are the poorest
employed persons which have to have three jobs in order
to get a proper income but will not get a state pension
for their effort. Theses mini-jobs should be made part of
the normal pension system.
• The transfer system again is paid by help of taxes and
only represents a basic allowance which is considered to
be the minimum life allowance to support a family. Most
persons should have a job which can care for a state
pension. The transfer system is not the care for all
Conclusions & Recommendations III
• Other private insurance systems: Rürup Rente (Life
insurance for 12 years which stays tax free, see
and Riester Rente (life insurance up to the age of normal
entry into pension (67 years) which receives annual funds
from the state (e.g. 300 Euro per year), see URL: http://de.wikipedia.org/wiki/Riester-Rente are meant to give
"richer" employers higher pensions.
• However these private investment life insurances are
mostly investing in bonds and therefore the outcomes
under the current economic conditions are uncertain.
This presentation was made for the final team
assingment ‘Final team project‘ of Prof. Joshua
Rauh‘s MOOC Finance of Retirement &
Pensions, Stanford University.
This assignment shall be the presentation of
one state retirement and pension system.