Your pension has a bug – and it’s the same bug all over Europe
Pay-as-you-go pensions run on one equation, and ageing breaks it from Lisbon to Warsaw. Seven countries compared, Germany worked through.
How pay-as-you-go works#
Politicians call the state pension a contract between generations. Funny contract: nobody ever asked you to sign.
The technical name is pay-as-you-go. It just means nobody invests your contribution for you. It lands in the pension fund and leaves again within weeks, as someone else’s pension. Most state pensions in Europe run this way, whatever the brochure in your language calls it.
And what do you get? A claim on whoever is working when you’re old.
The whole system is one equation:
contribution rate × number of contributors × average wage = number of pensioners × average pension
Anything the equation can’t cover comes from tax money or new debt. There’s no pot with your name on it.
Same bug, different flag#
Guess first
The highest promise in the table below. Spain also ages the fastest in it: from 34.9 people aged 65 and older per 100 of working age to 76.2 by 2054.
The equation doesn’t care about your passport. Here’s what the OECD counts and calculates for seven countries:
| Country | People 65+ per 100 aged 20 to 64, 2024 | Same, 2054 | Promised state pension, gross | Pension age |
|---|---|---|---|---|
| Germany | 39.8 | 59.7 | 42.1% | 67 |
| France | 40.2 | 53.4 | 56.6% | 65 |
| Italy | 42.0 | 76.6 | 70.6% | 70 |
| Spain | 34.9 | 76.2 | 80.4% | 65 |
| Austria | 34.1 | 61.1 | 74.1% | 65 |
| Poland | 33.7 | 67.8 | 28.6% | 65 |
| Netherlands | 34.8 | 48.9 | 28.6% | 70 |
| EU27 | 36.0 | 59.6 |
How to read that. The last two columns belong to a model worker: a man who starts at 22 in 2024, earns the average wage without a single gap and retires at the pension age his country has on the books for him. The percentage is his gross pension from the mandatory public system, as a share of his earnings. After tax the rates are higher. It’s what current law promises him. It isn’t what today’s pensioners get, and it isn’t your personal forecast.
Now look at Spain. It promises the most and ages the fastest in this table. One of those two numbers will change, and I don’t think it’ll be the birth rate of 1995.
The Netherlands is the interesting row. The state pension is small on purpose, and on top comes an occupational pension that is backed by capital: with it, the Dutch model worker gets to 74.7%. Denmark does the same (29.0% from the state, 72.7% in total). Money that was invested doesn’t depend on how many babies were born.
And Poland? Promises 28.6%. At least nobody can say he wasn’t warned.
Seven countries are a sample. Pick yours and see where it stands in Europe.
Your country, your numbers
Average earner, full career, state pension only. Source: OECD Pensions at a Glance 2025. Your choice stays in your browser.
Moving your career from Munich to Milan doesn’t fix the bug. It ships with the architecture.
Take Germany: fewer payers per pensioner#
Take Germany, because I know it best and the numbers are public. It’s also a useful warning: a big economy with tidy statistics and the same equation as everybody else. Everything from here to the verdict is the German case, in figures for 2026 unless I say otherwise. What to look up if you live elsewhere comes after the verdict.
Guess first
That’s the whole cushion. The rest of the money leaves within weeks of arriving, as someone else’s pension.
The German pension fund had a reserve of about €41.5 billion at the end of 2025, or 1.39 months of spending. Months, not years.
| Year | Contributors per old-age pensioner |
|---|---|
| 1962 | 6.05 |
| 1973 | 4.04 |
| 1988 | 2.99 |
| 2022 | 2.15 |
Until 1991 the series covers West Germany only.
The ratio has been flat at around two since the early 2000s, because employment grew. That grace period ends now: the baby boomers are retiring.
The Federal Statistical Office counts 33 people of pension age (67 and older) per 100 people of working age (20 to 66) in 2024. For 2070 its projection gives 43 in the best case and 61 in the worst. The working-age group was 51.2 million people in 2024. Even with high net immigration it shrinks to 45.3 million by 2070.
The OECD uses a different cut (65 and older per 100 people aged 20 to 64) and gets 24 for Germany in 1994, 40 in 2024 and 60 in 2054. Born in the late 1980s? You retire around 2054. Perfect timing.
The four knobs#
When the ratio falls, there are only four knobs to turn, in any country. Germany is turning all of them.
Knob 1: higher contributions#
The German contribution rate is 18.6% of gross pay in 2026, split between you and your employer. In 2010 it was 19.9%.
The government’s own pension report of November 2025 expects it to stay at 18.6% through 2027, reach 20.0% in 2029 and 21.2% in 2039. The projection ends in 2039. Your retirement doesn’t.
Knob 2: more tax money#
Contributions don’t cover the bill. Not some day. Today. In 2025 the pension system took in €422.6 billion, of which €321.6 billion were contributions. That’s 76%.
The German federal budget for 2026 plans €127.8 billion in payments to the pension system, out of €524.5 billion in total spending. About 24% of the federal budget. The government’s financial plan has this item rising to €154.1 billion in 2029.
And no, tax money isn’t free money. You pay it too, just through a different door.
Knob 3: later retirement#
Germany’s standard retirement age rises step by step to 67. For everyone born in 1964 or later it is 67.
You can still go at 63 with 35 insurance years, at a price: 0.3% less pension for every month you leave early, up to 14.4%, for life.
Meanwhile pensions are paid for much longer. In western Germany the average pension was drawn for about 10 years in 1960 and for about 20 years in 2025. Great news for people. Bad news for the equation.
The OECD recommends linking the retirement age to life expectancy once it reaches 67. Would I bet on 67 being the final number? No.
Guess first
That’s what the link looks like in practice. Germany stands at 67 for now, and the OECD recommends the same link there.
Other countries have already built that link into the law: Italy, the Netherlands, Sweden, Portugal, Denmark and Estonia. For someone who starts work today, the OECD pencils in 68 in Portugal, 70 in Italy, the Netherlands and Sweden, 71 in Estonia and 74 in Denmark. Seventy-four.
Knob 4: a lower pension level#
This is the knob with the most misleading label. Whoever came up with it deserves a marketing award.
What 48% means. Not what you think.#
Germany guarantees a “pension level” (Rentenniveau) of 48% until 2031. Many people read that as “I get 48% of my last salary”. Yeah, no. Even Deutsche Rentenversicherung says explicitly that this is not what it means.
The pension level compares two model figures: the pension of someone who paid contributions on exactly the average wage for 45 years, and the current average wage. Both after social contributions, before tax. Your last salary appears nowhere in the formula.
Two reality checks. First, 45 years on average pay is a model career. Know many people who had one? The average old-age pension actually paid in 2025 was €1,449 for men and €994 for women.
Second, tax. If you start your pension in 2026, 84% of it is taxable. The taxable share rises by half a point per year, so your generation will be taxed on all of it.
After 2031 the guarantee ends. The government’s projection has the pension level falling to 46.3% by 2039. For a new worker starting a full career in 2024, the OECD calculates a future net replacement rate of 53.3% from the mandatory system in Germany. The OECD average is 63.2%. The 42.1% in the table above is the same pension before tax.
What inflation does to the number#
Pensions follow wages, so they’re not frozen. But a euro in 2055 won’t buy what a euro buys today.
The ECB aims for 2% inflation. German consumer prices rose 2.2% in 2025. At 2% a year, prices rise by 64% in 25 years. A pension of €1,913 then buys what €1,166 buys today, unless it grows along the way.
If the pension level falls, pensions grow more slowly than wages. You won’t get less in euros. You’ll get less compared with everyone who is still working. Try your own figures in the inflation calculator.
The stress test: what if the tax money is needed elsewhere#
Everything above uses the official numbers. Here’s why I don’t stop there.
In 2025 about 23% of the German pension system’s income was federal money, not contributions: €97.84 billion of €422.59 billion. That money competes with everything else in the budget. And everything else is getting hungrier.
Veronika Grimm, a member of the German Council of Economic Experts, wrote in a dissenting opinion in the annual report 2025/26 that federal spending on social security, defence and interest is likely to reach about the size of all federal revenue without new debt as early as 2029. It is one expert’s projection, not the view of the whole council. I think she said out loud what others prefer to leave unsaid. The government’s own plan shows the pressure: interest costs of €30.2 billion in the 2026 budget and €68.1 billion planned for 2029.
My conclusion is simple. A promise that depends on money the state no longer has is not a promise I plan with.
You can run the same test with your own numbers in the pension gap check: pick your country, then switch from “What is promised” to “What the budget can afford”. The 23% is a German figure. For other countries I have no verified tax share, so you set the cut yourself. And if I’m wrong? Then you end up with a full pension and a portfolio. I can live with that. More on why I think this way in Own your future.
The verdict, without the brochure#
The German pension won’t disappear. It’s backed by law and by about 21 million people who receive it. The same goes for the French, the Italian and the Spanish one: pensioners vote. Anyone who says you’ll get nothing is selling something.
But every knob turns against people who retire from 2050 on, and the other countries in the table have the same four knobs: higher contributions while you work, more of your taxes redirected, a later start and a lower level relative to wages. The state pension becomes a floor. A useful, wage-linked floor for life – and still a floor.
So do the engineering thing: measure the gap, then build the second system yourself.
Not in Germany? Look these up#
Same homework, different letterhead:
- Your statement. Get your own pension statement or online account from your national pension insurer. Check whether the figure is gross or net, and whether it’s in today’s money.
- Your pension age. The one for your year of birth, and whether the law ties it to life expectancy.
- Funded or not. Which part of your pension is backed by invested capital, and which part by future workers. Only the second part has the bug.
- The tax share. How much of your pension system is already paid from the budget instead of contributions. That’s the part that competes with defence and interest.
- Several countries. Worked in more than one EU country? Each pays its own part when you reach its pension age, and you apply once, where you live or last worked.
Once you know your gap, how much you need to retire turns it into a target number, and investing in Europe shows the setup. If you would rather not wait until 67 or 70, read FIRE in Europe. The short version of this article is level 0 of the course.
This article is education, not investment, tax or legal advice. Projections are model calculations by the institutions named below, not promises.
Sources#
- Deutsche Rentenversicherung: Rentenversicherung in Zahlen 2026 (as of 25 June 2026)
- Deutsche Rentenversicherung: Rentenanpassung 2026
- Deutsche Rentenversicherung: FAQ Rentenniveau
- Deutsche Rentenversicherung: Rentenpaket 2025
- Deutsche Rentenversicherung: Rentenstatistik 2025 in Zahlen
- Deutsche Rentenversicherung: Renten für langjährig Versicherte
- Deutsche Rentenversicherung: Steueranteil für Neu-Rentner 2026
- BMAS: Rentenversicherungsbericht 2025
- Bundesregierung: Rentenbericht 2025
- Demografieportal / BiB: Beitragszahler je Altersrentner
- Destatis: 16. koordinierte Bevölkerungsvorausberechnung, press release of December 2025
- Destatis: Inflationsrate im Jahr 2025
- Bundesfinanzministerium: Bundeshaushalt 2026
- Deutscher Bundestag: Etat 2026 für Arbeit und Soziales
- Deutscher Bundestag: Haushaltsgesetz 2026 und Finanzplan bis 2029
- OECD: Pensions at a Glance 2025 – Table 4.1 (gross replacement rates and future pension age, man on average earnings who starts work at 22 in 2024), Table 4.2 (public and private parts), Table 6.2 (old-age to working-age ratio, based on UN World Population Prospects 2024)
- OECD: Pensions at a Glance 2025, country note Germany
- European Union, Your Europe: State pensions abroad
- ECB: price stability objective
- German Council of Economic Experts, annual report 2025/26, chapter 2, dissenting opinion (paragraph 152)
- Federal financial plan 2026 to 2030, Bundestag Drucksache 21/7301
Education, not advice. I don’t know your situation, and past returns promise nothing. Check my numbers, then make your own call. You’re a grown-up.