German government agrees on pension reform

After debating through the night, senior members of the CDU/CSU-SPD coalition government have agreed to go ahead with the country’s pension reform. The reform still needs to pass in the Bundestag.

Pension reform will go ahead despite JU opposition

The German government will go ahead with its planned pension reform. Chancellor Friedrich Merz (CDU) and other senior members of the coalition government deliberated the decision through the night.

Facing a demographic crisis which is only expected to worsen in the near future, the German government announced a pension reform in August 2025. But Merz’s reform came under fire from the youth wing of his own party, the Junge Union (JU), last week. 

A group of 18 JU MPs said the coalition’s pension reform was insufficient, would merely defer the problem to younger generations of Germans and that they would not vote to pass the reform in the Bundestag in December.

When the CDU won the February 2025 election, only 325 of the 630 Bundestag members voted to elect Merz as chancellor. This means that he has a narrow majority of 12 votes. Passing the reform with the support of the JU MPs would have been difficult, but losing their support might throw the government into deadlock.

What is included in the German pension reform?

Merz and co have said the current pension reform draft law would not be amended, but the government will address the JU’s concerns in an “accompanying text”, according to Tagesschau. 

So what is written in the German government’s pension reform draft bill? First, the pension level (Rentenniveau) will remain at 48 percent until 2031. The Rentenniveau is the percentage to which pensions relate to average German salaries.

This means that until 2031, people who have worked and paid into a statutory German pension fund for 45 years and retire will receive 48 percent of the average German wage as their state pension.

In the accompanying text addressing the JU’s concerns, the coalition explains that it will develop a “sustainability factor” for the Rentenniveau beyond 2031, which will account for the growing number of older people so that spending doesn’t balloon. 

In order to keep the Rentenniveau at 48 percent, the government initially announced plans to raise pension contribution payments by 0,2 percentage points. This meant that from 2027, the percentage of their income that employees in Germany would contribute to statutory pension insurance would increase from 18,6 percent to 18,8 percent.

Addressing the JU, the government has now said that pension contribution rates will remain stable for the next 10 years and that a “catch-up factor” (Nachholfaktor or Ausgleichfaktor) would be introduced to “reduce the need for compensation”.

A Nachholfaktor is a safeguard clause in the German pension adjustment formula, which ensures that any necessary theoretical pension reduction is made up for in the coming years in order to protect the pension fund.

Merz and fellow senior coalition members added that the reform would consider raising the German retirement age and that more focus would be put on encouraging employees to consider other types of income in retirement, including private pensions and company pensions.

What happens now?

It remains unclear whether the contents of the accompanying text will be enough to win back the support of JU rebels when members of parliament vote on the reform in December.