Education as an Enabler for Private Capital Accumulation

DIW Econ Economic Bulletin, No. 1/2022:

The pension system in Germany is based on the so-called three-pillar model, consisting of the statutory pension, work-based provision and private provision.

While the statutory pension is under intense pressure from demographic change, with the baby boomer generation reaching retirement age in the mid-2020s, only around 54% of employees subject to compulsory insurance in Germany benefit from the employment-based old-age provision. The private provision in the form of Riester contracts has also been taken out by only around a quarter of the working population.

The falling transaction costs for capital market investments in the course of digitisation should be seen as an opportunity to compensate for the lack of success of the Riester pension and thus to give the third pillar of the German pension system more importance again. However, this opportunity can only be fully exploited in terms of old-age provision if people start making sustainable and regular capital investments as early as possible. Better financial education as early as adolescence plays a crucial role in this.

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