German old-age provision is very security-oriented.

In the pay-as-you-go statutory pension insurance, there is a certain degree of protection against inflation due to the link to real wage developments.

The other two pillars (company and subsidized private old-age provision) include a legal obligation on the providers to issue a nominal guarantee to the beneficiaries.

Phillip Krohn

Editor in business, responsible for "People and Business".

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Every euro paid in must therefore at least be able to be paid out again when the pension begins.

This guarantee model is so popular with savers, politicians and interest groups that even the sharp increase in guarantee costs due to low interest rates has not yet led to this obligation being lifted.

These costs are quite considerable, as calculations by finance professor Olaf Stotz for the FAZ show.

Studies by the Institute for Finance and Actuarial Sciences in Ulm (Ifa) have also pointed out on various occasions that nominal guarantees do not provide real security, particularly when inflation is rising.

With higher interest rates, guarantees were easy to earn

Up until the middle of the last decade, guarantee costs in old-age provision were not a serious problem.

Because when interest rates are higher, pension fund investors can invest much more freely, while when interest rates are low, large parts have to be invested in low-interest investments of all things.

The low-interest dilemma of German old-age provision.

For his comparison of seven different pension models, finance professor Stotz from the Frankfurt School of Finance calculated (using the so-called bootstrap method) how they perform in 100,000 different capital market scenarios.

With a monthly savings rate of 100 euros for a 25-year-old investor, he calculated a monthly pension of 960 euros for an investment in shares in the best case, and 136 euros in the worst case.

The guarantee costs correspond to the difference between the payment of a typical guarantee product (such as the Riester pension) in the normal case with a guarantee-free system.

Stotz gives this average for the case of a share investment at 288 euros and for a Riester product at 162 euros.

Guarantees do not have great economic value

"There is no great profit from the guarantee," says Stotz, who determined his figures on the Pension Pilot he created after the black-red federal government once intended to ensure more transparency about pension entitlements.

This allows savers to anonymously enter their individual contract details into a computer and calculate their pension gap.

"The guarantee doesn't have much economic value, but in a normal scenario I lose something as an investor," says Stotz.

The numbers require interpretation.

However, they do indicate how pension assets are developing in various models, which are also being discussed in the political reform debate: Swedish pensions, strengthening company pension schemes based on the Dutch or Australian model, and he has also included the savings account as a benchmark.

The perception of their achievements is mainly related to their performance in the past.

If you compare the Swedish pension, which is a kind of leveraged equity investment without a guarantee, with the global stock market barometer MSCI World over the past decade, the performance of the Scandinavian investment has almost always been higher.

"It does well in boom phases, but in times like Corona it goes down faster than other models," says Stotz.