Scientific Advisory Board Report for the Federal Ministry of Finance
The Swedish model is insufficient when it comes to old-age provision in Germany

The report is a good starting point for the much-needed debate on a crucial future topic: The evolution of old-age provision. Based on (a) the proposals on further development of statutory pensions set out in the coalition agreement, and (b) the test mandate for private pension provision (pAV), the Scientific Advisory Council of the Federal Ministry of Finance has outlined core elements of a potential evolution of funded pensions. The report by the renowned panel of experts considers different forms of design and addresses the following important aspects:
- Organization (government offerings versus private-sector solutions)
- Capital investment strategy
- The importance as well as the costs of premium guarantees in private pension plans
- The question of voluntary versus obligatory participation (and whether it should be limited to certain target groups)
- Pay-out versus annuitization of benefits
The paper also discusses whether and in what form public debt financing would be justifiable when setting up funded systems.
Does the report lay out a completely new approach? Essentially, the authors appear to favor a mandatory supplementary system consisting of a state and private "standard offering" without committing themselves to a specific model. Some commentators argue that the equity pension – the so-called Swedish model – would be the correct solution. Yet such a model might fall short. To understand why, we must consider various aspects of old-age provision that would not be adequately reflected in a transition to this model:
1) Pension provision should have a broader investment base
2) Use of collective systems and efficient smoothing mechanisms
3) Incorporation into the three pillars of pension provision
4) Retirement provision always has a bearing on the future of our economy
Isn’t it therefore essential that we attribute more discussion to the question of how retirement provision can be linked to other pressing issues? Issues such as the transformation of the economy in Germany, Europe and worldwide, and the financing of business start-ups? Investments in infrastructure, for example, could be an excellent link; due to the long-term investment horizon in retirement provision, the achievement of higher returns by entering into long-term capital commitments (and the associated illiquidity premiums) appears particularly promising. This is demonstrated by innovative examples at the intersection of asset management and life insurance.
Surprisingly, some argue that mandatory standard products would promote the investment and equity culture in Germany and contribute to financial education and wealth accumulation among the population. However, strengthening financial education through a compulsory system does not appear to be the best route. There are more effective approaches to tackling financial education and investment promotion in Germany. One example is the promotion of employee share ownership in companies, which builds up assets in the long term and strengthens employee loyalty.
Based on the report and commentary, we should contrast and discuss other aspects of reform in the context of the debate around the Swedish model:
- Strengthening of funding and reduction of guarantees in both pillars of supplementary pension provision, i.e. in both occupational and private pension plans – this would allow more freedom and broader inclusion of alternatives in the capital investment
- Streamlining of Riester regulations and opening them up to new and more competitive forms of investment
- Promotion of financial education and consistent digitization of processes and systems (including a digital infrastructure for the dissemination of old-age provision to better target young people)
- Addressing how the necessary investments in the upcoming transformation process can be linked to retirement provision
This latter is of the utmost importance. It would be worthwhile to hold a broad debate on the topic, with a view to implementing future-oriented measures that allow for the targeted development of old-age provision, while also linking to the major future issues of our time.
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** As of June 30, 2023.
*** As reported – not adjusted to reflect the application of IFRS 9 and IFRS 17.