The German old-age dependency ratio is set to increase from 34 per cent in 2024 to 51 per cent by 2050, Allianz Germany research has found.

However, the research suggested that the actual ratio of retirees per contributor may already be closer to 50 per cent as not all individuals in the workforce are subject to social security contributions.

Therefore, Allianz said that if the share of the working-age population contributing to social security remained constant, the ratio of pension recipients to contributors is set to increase to 70 per cent.

The insurance company identified ensuring generationally fair pensions as a priority, noting that pension policy must balance two competing objectives: Ensuring a decent living standard in old age while avoiding excessive burdens on the working-age population.

The research pointed out that, historically, pension policy was inclined to the first objective.

Although some reforms were introduced 25 years ago, such as the demographic factor (a formula to dampen the rise of pensions) and the Riester-Rente, a form of pension provision that is subsidised by the German government and benefits from tax relief, the past two decades have largely prioritised pensioners’ interests.

However, Allianz said this was no longer sustainable and therefore avoiding measures that increase costs and strengthening capital-funded provisions are needed.

The insurance company said that while raising the retirement age may be politically unfeasible, introducing an age corridor with incentives to postpone retirement, similar to Sweden’s model, could effectively increase the actual retirement age.

It also suggested scrapping Rentenpaket II (Heil-Plan) and that stabilising mechanisms in the pension formula must be preserved and applied.

The report suggested that these adjustments do not cut pensions but slow their growth. It said implementing the proposed reform to stabilise the pension level at 48 per cent would “significantly” increase contribution rates and pension expenditures.

In addition to this, the report highlighted that reform of the Riester-Rente was long overdue and that a new product should adhere to five principles: reduced bureaucracy, lower guarantees, increased subsidies, greater standardisation, and a clear focus on low-income groups.

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