If you want to maintain your standard of living in old age, you often have to take additional precautions. What a future supplementary pension could look like is currently under discussion.
Consumer advocates advocate capital investment in private pension schemes on the basis of shares.
“Even if the statutory pension is stabilized as planned: Consumers who want to maintain their standard of living in old age remain dependent on additional provision via the capital market,” argued Klaus Müller, board member of the Federation of German Consumer Organizations (vzbv) on Tuesday.
According to an analysis by the Deutsches Aktieninstitut and the Vzbv in cooperation with Finvia Family Office GmbH, broadly diversified investments in stocks have historically shown higher long-term returns than government bonds.
Potential over many years
Germany had to repair wrong investments for 20 years with predominantly fixed-income pension products, demanded Müller. The future federal government must therefore “pave the way for low-cost, high-yield old-age provision that is broadly diversified and invests in stocks,” said Müller. According to Christine Bortenlänger, head of the Deutsches Aktieninstitut (DAI), a broadly diversified long-term equity investment unfolds its potential over many years and decades and “is therefore predestined for old-age provision”.
Although shares are subject to a price risk in the short term, the long-term view is important for old-age provision, according to the joint paper. The major stock indices of 16 industrialized nations over the past 120 years were examined. The result: while stocks increased their value by an average of 750 times (dividends and price gains), the value of government bonds only increased by a little more than eleven times (interest income and price gains). The annual return for stocks after deducting inflation was 5.7 percent, for government bonds 2.1 percent.
Less risky
From a historical perspective, long-term investment in stocks is therefore less risky than investment in government bonds. It took a maximum of eleven years, according to the information, for investors who invested in stocks at a historic high to offset a subsequent loss. In the worst case scenario, they had to wait 53 years for government bonds to return to profitability.
On the other hand, consumer advocates are critical of a capital coverage in the statutory pension. A share pension is urgently needed for private provision. In the statutory pension, however, there is a risk that the money for it could come from the contributions of the employees.
The consumer advocates point out that the pension insurance not only finances the old-age pension from the pension contribution of currently 18.6 percent, but also additional tasks such as disability pensions, widow’s and orphan’s pensions or rehabilitation services. If parts of the pension contributions are channeled into building up a capital stock, this could increase old-age pensions, but there would then be no money in the pension fund for the solidarity tasks.
The Deutsches Aktieninstitut, on the other hand, can imagine a savings process with shares in all pillars of old-age provision. In their exploratory talks before the coalition negotiations began, the SPD, Greens and FDP had agreed on a planned entry into partial funding of the statutory pension.
Source From: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
