Pension gap: what is missing between your needs and the statutory pension

What is the pension gap?

Two figures face each other. On one side your needs in retirement, on the other the statutory pension. What is missing in between is the gap. It has to be covered from private or occupational capital.

Needs do fall in old age. But less sharply than many expect. Work-related expenses disappear – commuting, work clothes, lunch out – and anyone past the family phase also saves everything the children used to cost in the household. On the other hand other items rise, above all health and housing. Around 80 percent of the last net income has become established as a starting point.

How to estimate it

For a first assessment three steps are enough, and you need neither an advisor nor software.

1. Take your current net income and calculate 80 percent of it. That is your estimated need.
2. Look at your pension statement. The amount stated there is gross; deduct roughly 15 percent for taxes and social security contributions.
3. The difference is your monthly gap in today’s purchasing power.

Rough calculation, assuming a net pension level of around 48 percent of the last gross income. Individual employment histories deviate considerably.

Anyone who wants to know more precisely uses the pension gap calculatorwhich takes account of age, income and the planned start of retirement, and factors in inflation.

Why the pension statement is misleading

Your pension statement shows an amount that looks reassuring at first glance. Three things are missing from it.

First, the figure is gross. Statutory pensions are subject to tax, plus contributions to health and long-term care insurance, so that between ten and twenty percent comes off the stated amount depending on your situation before anything even reaches your account. Second, it is given in today’s euros even though you will receive it in thirty years. At two percent inflation a euro will then have about 55 cents of purchasing power. And third, the projection assumes that you will carry on earning as you did most recently, without interruption, until you retire.

What it costs to close it

To get €700 a month in supplementary pension over around 20 years, you need roughly €170,000 in capital at the start of retirement. What that means for your contribution depends almost entirely on when you start.

Model calculation, 6% nominal, excluding costs, allowances and taxes. Target capital €170,000.

Ten years of delay roughly doubles the contribution. Every time. That is the real reason everyone always urges haste on this subject, and for once the warning is justified. The government subsidy in the Altersvorsorgedepot lowers the amount you have to put up yourself even further, because Allowances grow along with it from the very first year.

Three examples