Pre-programmed old-age poverty despite additional private provision by those with compulsory insurance

– Why average earners only have prospects of receiving a basic security pension –


Anyone who is employed as a worker with a continuous income until the age of 67 can expect to receive a net pension amounting to 50% of their last net income when they retire in the not too distant future. This enables the average earner to lead a dignified and self-determined life – as expressed by the Federal Government – on a basic security level.


Old-age poverty is virtually non-existent in this country

Anyone who has a net monthly income of EUR 760 or more is not considered to be absolutely poor – over EUR 950 net he is also no longer considered to be relatively poor and if he has more than EUR 1,150 he is also no longer considered to be at risk of poverty. If the income is lower, the German Pension Insurance recommends checking whether there is a right to a basic security pension. This includes all benefits that are also paid in the case of social assistance. For the legislator, poverty in old age seems to be conceivable only if no application for a basic security pension was inadvertently made. This includes EUR 382 for the living requirements of single persons in their own household. Spouses and life partners receive less (345 euros) and adult household members even less (306 euros), plus the warm rent for adequate accommodation – for a single person this is a room.

A reduction is made if the rental costs are too high, which forces you to move. Some municipalities also pay the estate agent to find a flat beyond the municipal boundary. In the past, they also used to pay for a ticket for the crossing to America on the Titanic 3rd class, or for sewing and cookery training followed by a trip to Deutsch-Südwest with the Woermann line with secure marriage prospects. Something else is the crediting of all income, including, for example, income from Riester pensions. However, the single person must first use his or her assets until no more than 2,600 euros are left over. Poverty would thus be conceivable in principle if the employment office were to cut the subsistence minimum – as a sanction for refusing retraining, for example – by up to 30%. After all, even those who have completed an academic degree can hardly avoid retraining as welders or working as temporary workers in the asparagus fields or in other precarious jobs if they become unemployed.


The statutory pension is “safe”

Anyone who currently receives his or her personal pension information is promised a pension if he or she has an average consistently high income from work, uninterruptedly until the start of retirement at the future age of 67. In the coming years, the amount of the pension will be reduced by 12% according to the will of the legislator. A further reduction occurs because only a basic allowance of EUR 8,354 is free of income tax and solidarity surcharge, so that a tax deduction of up to 15% may well reduce the future fully taxable pension. In addition, there is the deduction of up to more than 10% for social security contributions, such as statutory health insurance. The so-called benchmark pensioner with an average income is currently paid a monthly pension after 45 years. 1,266 euros – in fact, he can only expect to earn around 950 euros net in real terms in future, i.e. a quarter less. Even employees with an average income of up to more than EUR 30 thousand in annual gross salary have the best prospects for a life without poverty in old age, i.e. at the basic security level.


Pension information is subject to deductions of up to more than 42

Current surveys show that the younger generation in particular and those earning only up to the average are completely unaware of taxation and the amount of their expected net pension in relation to their net income – and therefore have no idea how large a gap will be in old age. Of the respondents with net incomes below 2,300 euros, only 4% even knew that the pension was taxed. The annual pension information appears to be so incomplete that pensioners are not even remotely informed correctly.


Pension illusions about the actual final disposable income

Only 2% of the working population can correctly state that 68% of this amount would be taxable at today’s pension start, with an annual increase to 100% from 2040. Almost nobody knows that pension increases are always fully taxable. Only 38% of those questioned can correctly classify the pension level, for example that today’s 20 to 34 year olds can receive an average of around 38%, while those aged 50 to 65 can still receive around 51% of their last net salary. However, future pension increases will not compensate for the purchasing power of the latter either, so that these pensions too will lag behind wage developments in real terms and will become less and less valuable until they too are pushed further and further towards the poverty line.

The majority of workers believe they have made sufficient provision, despite ignorance of personal pension levels, in particular a further reduction of up to more than 25% in the net pension level – compared to those currently retiring. However, this is probably not being made too clear to them, so as not to deprive them of the hope of being able to close the pension gap through provision.

From the point of view of the state, it is in fact sufficient if the additional provision does not secure the standard of living, but at least saves the taxpayer from having to top up to the level of basic security. In addition, productivity in the economy has been rising for around 15 years, but without employees having been significantly involved in this – contributions to the pension insurance system have remained correspondingly low. In addition, pensions have been decoupled from wage increases, so that pension adjustments only take wage developments into account to a lesser extent. The future gap between pension and earned income will widen, but this is not apparent from the state pension information. It could be mistakenly believed that this was already taken into account in the figures provided, but this is not true.


Unscheduled reduction for pension chambers and pension schemes

Pension schemes as recipients of compulsory contributions and pension institutions as recipients of voluntary contributions for a supplementary pension are understood to be professional, predominantly funded pension institutions in the form of legal entities under public law.

The competent Land ministries may reduce the pension or retirement benefits by order if the contribution income, capital and its earnings are no longer sufficient to finance them. This is usually established by the Court of Auditors or by an actuarial report, for example where there are doubts about the continuing ability to meet obligations, the establishment of sufficient technical provisions, the investment in appropriate assets and solvency.

The supervisory authority will counteract insolvency and the intervention of state guarantor liability by replacing outdated mortality tables, reducing calculation interest rates and cutting benefits and entitlements. This is permissible within the framework of so-called maladministration supervision, § 81 VAG, as confirmed most recently by the Administrative Court of Munich in its ruling of 11 May 2009 (Ref. M 3 K 07.5934). Cuts of up to more than 50% have already been observed.


Pensions from the perspective of an asset manager

Dentist Dr. Schaum has just become aware that the speculations of his pension fund (e.g. in the subprime crisis, but also the Greek and Cyprus crises) and the tax changes have halved his chances of receiving a retirement pension, and he is calming down for the time being because things could have been even worse. And so it comes when he is told that the permanently low interest rates in Europe are also likely to reduce the level of pensions by another third. He would not have expected a basic security pension. No, that can’t be right at all – he turns to an actuarial expert and is disillusioned: “If instead of the promised 3,000 euros, I can only hope for a pension of around 1,000 euros at best, then I’ll have to work until the end of my life?

He then meets an independent asset manager with knowledge of economics.

“So if you had invested a total of EUR 250,000 with me for more than 20 years, instead of paying this into your pension fund as compulsory contributions, you would already have assets of over EUR 1 million today, only if the German Share Index (DAX) were skilfully handled. Instead of the expected 1,000 euros, you would then perhaps receive a modest 3,000 euros monthly pension from dividends – and with asset consumption of more than 5,000 euros, “month for month”.

Dr. Schaum is at a loss – nobody has explained to him how to increase money without being lied to and cheated.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of



published in “Der Koment, trade journal for showmen and market traders” 30.04.2017 (issue 5569, page 4-5)

and (published in March 2014 under the heading: Preprogrammed old-age poverty)

and (Infinity magazine, 06/2017)

and (published in issue 8/2017, pages 37-39)

and (Published in “Focus”, issue 2018_02, pages 46-48)

Our office in Munich

You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.

About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
»More about Dr. Johannes Fiala

On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.

Arrange your personal appointment with us.

Make an appointment / call back service

You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.

Obtain a second legal opinion

(The first phone call is a free get-to-know-you conversation; without consulting. You will learn what we can do for you & what we need from you in terms of information, documents for a qualified consultation.)