In most countries, a pension is seen as maintaining a person’s standard of living if it pays out about 70 percent of their average income from his or her last few working years. Only this measure hasn’t been reached in the history of Germany’s statutory pension system.
That’s because individual pensions have been calculated in accordance with the principle of “contribution equivalence” ever since 1957. Under this principle, the first few years working, where pay is usually relatively low, have the same impact on the pension paid out as the last few years before a person retires, during which the highest salaries are usually earned.
Contrary to popular belief, the calculations are then based on the “standard pension” of a fictitious retiree who paid contributions from his or her average wage for 45 years. The pension level is the ratio between this standard pension and the person’s own average wage.