How would Germany’s 33-point pension reform impact you?

A commission appointed by Germany’s CDU/CSU-SPD coalition has put forward a 33-point proposal to reform the country's pension system. Which changes have been proposed, and what would they mean for people living and working in Germany?

Pension reform commission reveals plan

A 13-person expert commission appointed by the German government has published a 33-point plan to reform the German pension system. 

Presenting the plan on Tuesday morning, Chancellor Friedrich Merz (CDU) said the points “form a complete concept that only works as a whole” and that the reform “must now be implemented quickly".

Speaking at a conference on Monday, SPD leader Lars Klingbeil stressed that the coalition would first have to agree on the reform. Once an agreement has been reached, the plan will still be subject to two readings in the Bundestag, potentially amended, and a face final vote. 

“We need this patience in a democracy, for me it also is important that the [reform points] aren’t talked to death,” Klingbeil added.

What is written in Germany’s 33-point pension reform?

So what has the expert commission proposed? Of the 33 points, several policies would directly impact a significant proportion of the population:

Tying retirement age to life expectancy

Currently, the retirement age in Germany is 66 years and applies to people born in 1959. This will reach 67 by 2031, and will apply to anyone born in 1964 or later.

The commission has proposed linking the retirement age to life expectancy. This means the age at which people who have worked in Germany could claim their state pension would rise to 67,5 in 2041, 68 in 2051, and 70 in 2091.

Scrapping early retirement at 63

At the moment, anyone who has contributed to the German state pension system for at least 35 years can opt for early retirement. If you have contributed for fewer than 35 years, you can take early retirement, but your pension entitlement is reduced by 3,6 percent for each missing year.

The commission has proposed that people who retire early, often at 63, should be subject to reductions in pension entitlements, even if they have contributed for at least 35 years.

Investing pensions in capital markets

The German pension system currently has three pillars: statutory pension insurance, company pensions and private pension insurance. The government advises residents to contribute to at least one of the latter two pillars to “top up” their statutory pension.

The commission has now suggested introducing a fourth, “mandatory capital pillar”, based on elements of the Swedish pension system. Under this system, employees in Germany would contribute 0,5 percent of their income before tax to the “mandatory capital pillar”, with contributions to rise to 2 percent in the future. These contributions will be paid into a government-managed fund.

The idea behind this policy is that all contributors will benefit from positive changes in the capital market and from compound interest. However, the Social Association of Germany (Sozialverband Deutschland) has pointed to a lack of predictability, according to ZDF.

Freelancers would pay into the statutory system

At the moment, people who are employed on a freelance basis in Germany are not obliged to contribute to the statutory pension system, and can instead contribute to the private system. The commission has proposed that freelance workers, alongside politicians, be obliged to pay into the statutory system, as most other employees are.

Which other policies have been proposed?

Further policies in the 33-point proposal include reducing the number of civil servants in Germany by tightening the criteria for becoming one. 

This is because civil servants currently pay into a pension insurance scheme which is separate from the statutory system, and reducing the number of civil servants would integrate more employees into the statutory system. Labour Minister Bärbel Bas (SPD) has proposed scrapping the separate pension scheme for civil servants altogether.

Currently, people in Germany who work mini-jobs and earn no more than 603 euros per month are not required to contribute to the pension system. The commission has proposed that, going forward, contribution-free mini-jobs only be available to students. 

The commission has also suggested reintroducing the so-called “sustainability factor” (Nachhaltigkeitsfaktor), which was introduced in 2005 and has been suspended until 2031. The sustainability factor is a calculation which is used to adjust pensions based on changes in the ratio of active contributors to the pension system to pension claimants.

Proposals already facing widespread criticism

While the 33-point proposal has only just been released, it is already facing widespread criticism. 

Responding to the plan, the president of the German Trade Union Confederation (DGB), Yasmin Fahimi, said claims that people in Germany needed to retire later in order to keep the pension system sustainable were “a myth designed to scare people”. 

Fahimi said that instead of raising the retirement age, German politicians should “ensure that people enter retirement in good health or are at least reasonably able to work”.