For some, retirement may be a long way off and therefore less of a focus on retirement provision; for others, retirement is getting closer and closer. The fact is that for many people, the pension won't be enough to maintain their standard of living. According to the Federal Statistical Office, a fifth are at risk of poverty in old age, with women disproportionately common. But how do we determine the amount of our pension and what can we do to still be adequately covered for old age?

But how does our pension system actually work?

There are three pillars of retirement provision in Germany: the statutory pension, the company pension scheme and the private pension scheme.

The statutory pension works according to the so-called pay-as-you-go procedure, which means that contributions from current employees are paid directly to current pensioners. Your contributions are therefore not saved in a “savings account” or similar for yourself, but are used directly as ongoing financing of current retirees' pensions. However, due to demographic change and a generally longer lifespan, fewer and fewer employees are now paying for a pensioner's pension, which is reducing the pension level.

As you've probably seen on your payslip, your pension contributions are deducted directly from the workers' gross salary. For every euro you deposit, you receive two pro rata pension points. The number of pension points you have collected will later determine the amount of your pension. In order to receive a full pension point, you must earn exactly the average income in Germany in one year. If you earn more or less, you will receive more or less pension points on a pro rata basis. You also receive pension points for education and care periods.

Your pension points are then multiplied by a fixed value, the so-called pension value, to determine your pension.
The pension value in 2024 is 39.32€. So if you have collected 40 pension points, the pension value is multiplied by these points — resulting in 1572.80€ pension. But attention! It's your gross pension. This also includes taxes and pension deductions, so that your net pension is lower.

In order to receive a statutory pension, you must have paid into it for at least five years, i.e. meet the minimum insurance period. But not every working person pays into the statutory pension. For example, civil servants receive a pension from the state, self-employed or freelancers must make provisions themselves, or professional groups such as doctors, lawyers or farmers are organized here in professional pension funds.

Is my pension enough?

Now you know how our pension system works in principle and how your pension is calculated. By the way, you can find out your expected pension from the pension statement. Starting at your 27th birthday, you will receive this once a year by post from the German Pension Insurance, provided that you meet the minimum insurance period of five years.

If you know the expected amount of your pension, it is important to calculate your pension gap. The pension gap is the difference between your last income before retirement and the pension you receive in old age from the statutory pension insurance scheme. You want to make use of these in order to maintain your standard of living even in old age.

Private retirement — but how?

But how do you close your pension gap? By taking private benefits. Here you can use various products, such as Riester or Rürup pension products, private pension insurance products or invest in stocks, ETFs or real estate yourself.

conclusion

In view of demographic change, falling pension levels and increasing pension gaps, we can no longer just rely on our statutory pension, but must make provisions ourselves. Even though retirement may still seem a long way off, it's worth starting early. Even small amounts can make a big difference over a longer period of time.

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