Pensions in Germany to rise by average of 5 percent next year

After seeing their benefits stagnate in 2021 due to the economic impact of the coronavirus pandemic, pensioners in Germany can look forward to an increase next year. The government is also changing the way benefits are calculated, which could mean a permanent increase for pensions in Germany. 

More money in German pensioners’ pockets

Every year, the German federal government makes a so-called pension adjustment (Rentenanpassung), based on the development of salaries in the previous year. A few weeks ago it was announced that, as a result of falling wages in 2020, pensions would remain stable in the western federal states and rise marginally in the eastern federal states in 2021. A cut to pension benefits is legally ruled out by Germany’s pension guarantee. 

However, with incomes projected to bounce this year as the country vaccinates its way out of the pandemic, German media are reporting that pensions look set to rise significantly on July 1, 2022 - by as much as 4,8 percent in western Germany, and 5,6 percent in the east - according to a government report seen by Bild. 

For the “average pensioner” in western Germany, who according to the Deutsche Rentenversicherung received 1.139 euros per month in 2019, this would equate to around 55 euros extra per month. In the eastern federal states, the average increase would be approximately 68 euros per month. 

Why are pensions rising by more than usual?

One of the reasons why the increase is bigger than usual - and why more increases of this size can be expected in future - is that the German government has made some changes to the way it calculates the pension adjustment. One of these changes is the deletion of the so-called “catch-up factor”, which previously stipulated that pensions should not rise if wage increases were offset by earlier wage declines. 

In a nutshell, even though wages fell sharply in 2020, pensions remained the same. If wages increase as they are expected to in 2021, pensions will rise in line with this, despite the fact that workers in Germany are actually no better off than they were before the pandemic. The previous year's decrease in wages will not be taken into account for the pension calculation - only the increase will. 

As Germany operates a pay-as-you-go pension system, whereby the working population pays for pensioners’ benefits, the cost of the change - estimated to be around 4 billion euros per year - will be borne largely by working taxpayers. 

Wolfgang Steiger, Secretary General of the CDU Economic Council, has criticised the decision and called for the change to the pension calculation formula to be reversed. Speaking to Bild, he said: “That would only be fair to today’s workers and especially the younger generation, who will face an even greater burden in the future.”