Mind the Age Gap: Germany's Impending Pension Crisis

Kelly Louise Davies

As a longstanding powerhouse in the global economy, Germany has often been able to bounce back from macroeconomic tests like the 2008 Financial Crash and costly War Reparation Payments. However, one such test, ingrained in the economic labour force itself, may be more challenging to overcome: the impending pension crisis. 

Since World War II, the life expectancy of Germans has gradually increased by seventeen years to an average age of 81 (in 2020). The increase can be attributed to improved standards of living, global medical advancements, and worker and civilian health and safety legislation. Simultaneously, Germany has exhibited a declining birth rate caused by legislation and cultural movements that support women’s careers and expansion of education offered to younger generations. 

As a consequence, Germany is nearing a top-heavy population with a disproportionate ratio of retired seniors to working adults. The problem arises when Germany’s state pension scheme supports retirees using the economic activity carried out by the current workforce. 

The spread of Germany’s population by age demographic (Wikimedia, 2018)

An unexpected factor accentuating the imbalance of working to non-working citizens is the population shrinkage that has occurred over the duration of the Covid-19 pandemic. The reduction in citizens by 40,000 is thought to be a result of reduced migration to Germany from other countries. Although a prominent member in the EU, which facilitates free and open movement to residents of its member states, Germany’s borders have accepted less working-age visitors because of tighter travel restrictions and regional uncertainty. Added issues arise due to economic contraction and sharp increases in the unemployment rate in the pandemic, providing less financial revenue from which the elder generations can claim their pension funds.

One way the German government can mitigate potential issues could be to encourage citizens to invest more into the other two pillars of pension schemes available: Occupational or Direct Pensions. Those would supplement the shortfall in government funds available. However, the ethical side could affect people’s satisfaction with how the Chancellor and their team take care of their seniors.

Alternatively, Germany can promote a scheme to re-welcome migrant workers to the country and its companies in an effort to narrow the gap between non-working and working citizens. This would follow a similar route to Australia’s post-war immigrant scheme to increase overall population, only on a smaller scale. 

Efforts can be made to postpone the German retirement age beyond its current 67 years to alleviate the pressure on the government and economy providing for its seniors, but not without a fallout with the public’s frustration and dissatisfaction.