Germany’s faltering pension system is the reason behind the country’s placement at 20 in the most recent Mercer CFA Institute Global Pension Index 2024.

Mercer said that while the country has achieved a slightly better score than in recent years, it still slipped one place in the overall rankings. More alarmingly, the country’s pension system is only ranked 33 in the world in terms of sustainability – how future-proof it is considered to be – and 27 in terms of what Mercer calls ‘integrity’.

On the same index, Germany has been much better ranked in the past. In 2009, its score was calculated at 48.2, but has since then steadily deteriorated to its current value. The only two times its score has improved between 2009 and today were between 2015 and 2016, and between 2022 and 2023. The period between 2023 and 2024 commences another decrease for the nation.

Mercer Germany head of wealth Michael Sauler, said: “Our pay-as-you-go pension system is increasingly under pressure due to the combination of low birth rates, rising life expectancy, and increasing costs of the social security system.”

He added: “Accordingly, the need for additional, defined contribution, and sustainably funded pension plans, such as those offered by occupational pensions, is rising. Companies have largely recognised these challenges and are offering their employees attractive pension concepts, not least to improve employee retention and differentiate themselves from the competition. Additionally, companies are voluntarily increasing the funding level of their pensions, thus addressing the aspect of sustainable pension provision.”

Mercer said that the improvement seen in its value between 2023 and 2024, from 66.8 to 67.3, was primarily due to an increase in the net pension replacement rates, along with an improvement in household savings and household debt.

In order to increase its rankings, Mercer suggests within the report that it could increase the minimum pension for low-income pensioners, do likewise to the level of funded contributions in private pension plans, and broaden the coverage of employees in occupational pension plans.

Commenting, CFA Society Germany executive board member, Susan Spinner, said: “Germany continues to struggle with a difficult demographic situation in the pay-as-you-go system. This complicates the financing of our pension system. One way to counter this unfavourable situation remains the expansion and enhancement of non-state occupational and private pensions. The willingness of the population to invest in such schemes is increasing. However, it should be further encouraged through smarter incentives.”

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