German Citizen Fund can reduce the pension gap

Photo: Maria Koleva Clemens Fuest, President of the ifo Institute.

In its latest study, the Munich-based ifo Institute shows that the German Citizen Fund, a new instrument for strengthening wealth formation and pension provision for the entire population, could reduce the pension gap for low earners. Germany's excellent creditworthiness as a debtor enables the country to borrow cheaply and to achieve a considerable yield differential with a reinvestment, the study said.

As an ifo simulation shows, if the federal government were to invest 0.5% of GDP per year for all people of working age starting today, financed by slower reduction of public debt, the return after 50 years with an average yield differential of 2% would amount to a good €16,000 per capita, which could be paid out once a citizen reaches the age of 67.

Many people today find it difficult to build up private wealth because interest rates have been low for years, said Clemens Fuest, President of the ifo Institute and one of the authors of the study, adding that at the same time, for many people the benefits provided by the pay-as-you-go pension insurance are barely enough to ensure good pension benefits in old age. This is where the instrument of a German Citizen Fund could step in, he added.

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