Key facts
- German Chancellor Friedrich Merz pledged to rapidly reform the country's pension system.
- A commission presented 33 recommendations, including a capital-funded savings scheme and linking retirement age to life expectancy.
- The retirement age could be raised in line with life expectancy starting in 2031.
- The proposal includes scrapping the provision for retirement at 63 with 45 contribution years.
- The minimum retirement age could be raised to 64.
- Chancellor Merz stated the coalition's intention to implement the proposals quickly and in full.
German Chancellor Friedrich Merz has pledged to swiftly implement a comprehensive reform of the country's pension system, aiming to address challenges posed by an aging population and economic pressures. The proposals, developed by an expert commission, include introducing a capital-funded savings scheme modeled on Sweden's system and gradually increasing the retirement age in line with life expectancy.
Merz stated that "failure is not an option" for reforming the system, which faces increasing costs due to demographic shifts. The commission's 33 recommendations aim to prevent a decline in pension levels and avoid significant long-term increases in employee contributions, which currently stand at 18.6% of gross wages.
Key proposals include linking the retirement age to life expectancy starting in 2031, potentially increasing it by about six months per decade. The commission also recommended scrapping the provision that allows individuals with 45 years of pension contributions to retire at 63 without financial penalty, and raising the minimum retirement age to 64. Additionally, the age at which people can begin reducing their working hours before retirement is proposed to increase from 55 to 58.
Chancellor Merz indicated that his coalition government intends to implement these proposals fully and rapidly. Labor Minister Bärbel Bas, representing the center-left Social Democrats within the coalition, echoed this commitment. The government faces the task of passing these reforms through parliament, where its majority is relatively slim, and has already drawn criticism from labor unions.
