Germany is widely understood to be facing major challenges. On the one hand, we must prepare our country for the future – ecologically, digitally, and technologically. On the other, we must renew the promise of social security, which has underpinned social cohesion for decades. And we must be able to guarantee the country’s security in military terms as well. All of this requires substantial financial resources that can no longer be provided solely through government budgets or pay-as-you-go systems. Capital markets – traditionally underestimated in Germany – can play a central role in providing those resources.

An investment backlog meets a pension gap

The German economy has been underinvesting for years. According to estimates by various research institutes, the need for modernization in infrastructure, energy supply, education, digitalization, and defense will exceed €500 billion by 2030. Private investment, particularly in research-intensive and technology-driven companies, also lags behind in international comparison. While venture capital and growth capital are key drivers of innovation in the US and Scandinavia, Germany continues to rely primarily on bank lending. The result is structural underfunding of young, scalable companies– and a loss of momentum.

At the same time, the pay-as-you-go pension system is coming under pressure. Demographic change is having an inexorable impact: fewer workers must support a growing number of retirees. Already, more than €100 billion per year flows from the federal budget into the pension system—and the trend is rising.

The pure pay-as-you-go model is reaching its economic limits. Without structural reform, the outcome will be higher contribution rates, lower pensions, or rising public debt. A sustainable concept must therefore include a funded component that generates long-term returns from productive investments.

At their core, both challenges– the investment deficit and the pension gap– reflect the same weakness: the underutilization of capital markets. Germany holds vast household savings, but much of this capital remains unproductive, parked in bank deposits or short-term bonds. If even a portion of these funds can be channeled through capital markets into future-oriented projects, two objectives can be achieved at once: investment in growth, innovation, and security – and investment returns that flow back into retirement provision.

Capital markets as the missing link

A well-functioning capital market is therefore not an end in itself, but rather infrastructure for economic renewal and social stability. Institutional investors such as pension funds and life insurers could act as long-term providers of capital – if the right framework conditions are in place.

To make this happen, structural barriers must be dismantled. Firstly, Germany needs a deeper equity culture – among both private and institutional investors. Secondly, the regulatory framework must be adjusted to make long-term investments more attractive. Thirdly, policymakers must send a clear signal that capital-market development is a core element of a national transformation strategy, not a by-product.

The debate over equity-based pensions is an important step, but it is not enough. What is needed is the systematic development of a fully funded pension system – for example, through independent, state-mandated funds that are professionally managed and invest in a broad portfolio. Crucially, such funds must be insulated from short-term political interference and operate according to clear, long-term principles.

Toward a new consensus

For a long time, Germany has benefited from stability, industrial strength, and export success. In the future, our competitiveness will also depend on how effectively the country mobilizes capital and converts it into productivity. That will require a new societal consensus. Saving must no longer mean passivity, but participation. Retirement provision should not be viewed as a burden, but as part of a productive capital strategy.

The capital market is neither an end in itself nor a threat. It is a tool for directing resources to where they can have the greatest impact: on innovation, employment, and prosperity. If Germany embraces this perspective, capital markets can become the foundation for a sustainable economic and social order. 

Dr. Paul Achleitner is an investor and serves on various supervisory and advisory boards. From 2012 to 2022, he was Chair of the Supervisory Board of Deutsche Bank AG, and from 2000 to 2012 CFO of Allianz SE. From 2000, he was a member of the Stock Exchange Expert Commission at the Federal Ministry of Finance, serving as its Chair from 2009 until 2019.