A debate is underway in Germany over reforming the private pension system to strengthen its funded pillar. A Deutsche Bank Research report from March 2026 underscores that the current pay-as-you-go system is reaching the limits of its sustainability due to an aging population. In 2024, the fertility rate fell to 1.35 children per woman, the lowest in 20 years. By 2035, the number of people above retirement age will rise from 17.6 million (20% of the population) to 20 million (24%). By 2040, there will be only two contributors for every retiree, compared with 2.5 today. The federal budget already subsidizes pension insurance to the tune of 128 billion euros annually, accounting for 24% of expenditures.
The reform aims to make the third pillar (private retirement savings) more attractive, transparent, and return-oriented. The current Riester model, introduced in 2001, suffers from numerous shortcomings: low rates of return (nominally 3%, often negative in real terms), high costs, and a lack of transparency. The guarantee of contribution returns restricts investment in riskier but more profitable assets. The number of Riester contracts has declined from 16 million in 2017 to 15 million today, and 20–25% receive no contributions. Roughly 61% of Germans have no private pension contract, and capital income accounts for only 10% of retirement income, compared with 23% in the United States.
The German government's proposed innovation is the "retirement savings account" (Altersvorsorgedepot). It would permit investments without guarantees (up to 100% in equities, risk class 5), alongside options with 80–100% contribution guarantees. Costs for the standard product would be capped at 1.5% per year, with the option to switch providers after 5 years at no charge. Tax incentives: contributions up to 1,800 euros would be tax-exempt, supplemented by state grants (30% for contributions up to 1,200 euros, 20% above that threshold). Individuals under 25 would receive a one-time bonus of 200 euros. During the payout phase, flexibility would be built in: a lifetime annuity or payments up to age 85.
The reform could yield benefits, as Germans save 20% of their income (above the EU average of 13.2%), yet 65% of their assets sit in low-return deposits and insurance products. Equities delivered a 767% nominal return between 2003 and 2025, versus 26% for deposits.
By some estimates, the reform could generate 8 billion euros in additional investment in European equities annually, helping to close the EU's investment gap. German households hold financial assets equivalent to 209% of GDP (EU average: 214%), but trail Sweden (347%) and Denmark (369%).
International comparisons: Sweden (mandatory premium pension, 46% of GDP in assets under management) achieves 11.5% annual returns thanks to a 100% equity allocation up to age 55. The United States (IRA, 54% of GDP) and the United Kingdom (21% of GDP) offer low costs (0.49–0.57%). Poland (PPK, auto-enrollment) has a 57% participation rate, and Estonia 13% with a 22% tax relief.
