Wealth Management
8 min

Closing the pension gap

The pension gap is a worrying factor in old-age provision. More and more people are getting into financial difficulties in retirement because they have dealt with their pension provision too late. The German pension system is now on shaky ground. In the following article, we will show you what the pension gap is, what causes it and what measures you can take to close it.

Mona Feather

What is the pension gap?

As the term implies, the pension gap is the portion of your financial needs that you cannot cover with the state pension alone. By 2050, the net pension level is expected to shrink to 41 percent. These are worrying figures. No wonder that almost a quarter of the over-80s in Germany suffer from old-age poverty.

How do you determine your pension gap? People with statutory insurance receive a so-called pension information sheet after five years in the job. This contains the most important information about your insurance history to date. This gives you a valuable indication of the future benefits you can draw from the statutory pension fund. However, since a change of job, promotion or dismissal can always play a role, this is only a snapshot. In principle, however, you can expect to draw between 40-50 per cent of your current salary during retirement as an employee. The company pension scheme is not included in this case.

Below we will take a look at the main cause of the rising pension gap.

Causes for the increasing pension gap

One of the most serious reasons for the emergence of the pension gap in Germany is demographic change. The German pension system is currently purely pay-as-you-go. In concrete terms, this means that employees finance the state's pension obligations through their pension contributions. However, we are already in a situation today where pension payments have to be subsidised through tax payments.

As fewer and fewer young workers finance the increasing number of pensioners, the pension level cannot be maintained. The burden on the pension system is too substantial, which is why calls for reform are also growing louder. The view often goes abroad, to Scandinavia. There, for example, the state relies on a capital market-based component. Part of the insurance premiums in Sweden flow into an equity fund. The increases in value are supposed to reduce the pension burden.

Another cause of the high incidence of old-age poverty, on the other hand, lies with us. Many people ignore the need for additional private old-age provision. "The state pension" will be enough - these are phrases that are often heard, especially from young people. The reality, however, looks different.

Women are more affected than men

Women are much more affected by the pension gap and the resulting risks than men. According to a study by the University of Mannheim, women receive up to 26 percent less pension - while their financial needs remain the same. According to the study, the pension gap opens from the age of 35. This is said to be due to the fact that many people start raising a family during this time. Women often drop out of the labour market (for a certain period of time) during this period.

Women also work on average far less than men when they re-enter the labour market. This can have drastic consequences on their financial stability and dependency in retirement. Women therefore need to start their private pension provision much earlier or invest higher amounts to close their pension gap. The so-called gender pay gap has been in the focus of politics for years and is sometimes controversially discussed. The basis for the discussion is that women - despite having similar positions - often earn much less than men. This leads to lower pension contributions and ultimately to fewer entitlements.

Ways to close the pension gap

We can discuss the problems and causes of the pension gap for a long time. At the end of the day, it is up to us to close our own pension gap. The following approach can help you to do so:

In the first step, you should determine how high your financial needs will be in old age. You can do this by using a well-known rule of thumb: 80 per cent of your current net income. If you add inflation to this amount until you retire, you will get the amount you should receive monthly to cover your financial needs. You can find the actual pension benefit in your pension information. Alternatively, you can use a pension calculator to estimate your future entitlements.

As soon as you know how high your pension gap is, you can decide on an option for private old-age provision - or use various options. In addition to various insurance products and Riester contracts, the capital market and alternative asset classes are available to you. The returns are higher with the latter, but so is the total risk of default. You receive no guarantee of profits, as total defaults can occur at any time during the investment phase.

Important tip: To find out how much you need to accumulate in order to pay out a certain amount each month in retirement, you can use the BVI's withdrawal calculator. You can use the figures to control your current savings rate etc. in order to be best prepared for your retirement.


The pension gap is real and one of the major social problems of our time. Over time, it will increasingly decrease, which is why people have the chance to take countermeasures today. With a private pension plan, we can build a relaxed financial basis for our retirement years. The earlier we start, the better.

When choosing products for your old-age provision, make sure that they suit you. If in doubt, find an advisor who can help and support you in setting up a strategy.

Mona Feather
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