Pension Reform

Needing a Nudge

With its rapidly aging population, Germany must find an appealing pension solution.
  • Why it matters

    Why it matters

    “Nudging” people to save by automatically enrolling them in pension plans has been a successful element of reforms in other countries.

  • Facts


    • Less than half of Germans eligible for tax-subsidized private pension plans have participated.
    • In the United Kingdom, implementation of automatic enrollment triggered a strong increase in participation in the workplace pension system.
    • A recent Hertie School and Metallrente study shows that 83% of young adults would welcome the introduction of an opt-out system.
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Fifteen years after Germany enacted sweeping pension reforms, the future of its pension system is once again the subject of controversial debate.

Less than half of Germans eligible for tax-subsidized private pension plans, one of the reforms’ cornerstones, have participated. This has foiled efforts to make up for state pension cuts by encouraging private retirement savings.

Responding to the grim outlook of a quickly aging society in 2001, then-Chancellor Gerhard Schröder introduced a gradual decline in public pension benefits. To compensate, individuals (and their employers) should contribute to tax-subsidized individual retirement plans, the so-called “Riester” plans (after the then-Labour Minister Walter Riester), and employment-based pension plans.

Given Germans’ penchant for post-war saving and austerity, these new second and third pillars of the retirement system would fill the gap, allowing for a smooth transition to a system of shared responsibility. So the theory went, at least.

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