What is the pension gap?

The pension gap sounds technical, but it is a very simple thing: it is the difference between what you need to live on in old age and what actually reaches you at the end. Here I explain calmly what is behind it, why almost everyone has one, and what you can do about it. No jargon.

Why it exists at all

The statutory pension was never meant to replace your whole standard of living. It covers a part, not everything. That is not scaremongering, it is simply how it is built.

On top of that come two things that work slowly but add up over the years. First, the pension level has been falling bit by bit for a long time. Second, prices rise a little every year, that is inflation. What is 2,000 euro today feels much smaller in 30 years. The two together mean a gap is left between your future pension and what you need. For most people the question is therefore not whether, but how big.

Where and when it appears

You see it most clearly when you look at it over time. Your statutory pension does grow a little, that is called the pension adjustment. But your needs usually grow faster, because prices rise more. The area in between is the gap, and it tends to get bigger over the years rather than smaller.

Roughly how big is it

Honestly, no one can give you a fixed number, because it depends on your salary, your retirement age and your lifestyle. Very roughly, the net statutory pension is often a bit more than half of your last net income, sometimes less.

What you actually end up short depends just as much on how much you want to spend in old age. And there you can often steer more than you think. A few things that make your gap in retirement smaller:

• Your own home: once the flat is paid off, the rent disappears. In old age that is often the biggest item of all.
• Children moved out: the costs for the children fall away at some point.
• Living cheaper: moving to a smaller or cheaper flat lowers your needs noticeably.
• No more savings rate: what you set aside every month today, you no longer need to save in retirement.

The other way round, a few things can also raise your needs, for example health or care. That is exactly why a blanket rule of thumb helps little. In the app you can enter your needs in detail, instead of calculating with just a rough percentage. That way a general estimate becomes your personal gap.

Two examples

So it does not stay abstract, here are two very different cases. Both are calculated with the same formulas as the app, so you can reproduce the values yourself. All amounts in today's purchasing power.

Lena, 30, big city

Gross 48,000 €/year, retiring at 67, 2% inflation, needs 85% of net, around 5 pension points already earned.

Thomas, 50, small village

Gross 42,000 €/year, retiring at 67, 2% inflation, needs 70% of net, around 22 pension points already earned.

You can see it: the gap depends heavily on how much you have already paid in and how much you really need in old age. Two numbers, two completely different situations. That is exactly why it pays to work it out for yourself instead of using a rule of thumb.

Statutory pension only, without private provision. Examples for illustration, not a forecast. How to close the gap comes next.

What you can do about it

The good news: you can close the gap, and there are several ways to do it. Each has its advantages and its catches, and none is right for everyone. A quick overview:

• ETF savings plan: you invest regularly in a broad equity fund and draw from it later. Flexible, but it swings with the market. More on this →
• Private pension: an insurance that pays you a lifelong monthly pension from retirement. Predictable, but less flexible. More on this →
• Buy pension points: pay voluntarily into the statutory pension and so raise your later pension. In the app you can also see from when it pays off. More on this →
• Rented property: rental income as an extra source of income in old age, with everything that comes with it (tax, costs, loan). More on this →
• Altersvorsorgedepot: a state-subsidised investment account (planned from 2027), more support, but with more rules and less flexibility.

I am writing separate pages on the individual ways bit by bit. In the app you can run them directly for your own situation and compare them with each other.

Work out your own gap

If you want to know how big your gap really is, just try it in the app. It calculates everything locally on your device, no sign-up, no tracking and no ads. The basics are free.