The 30 pension reform proposals put forward by a specially convened commission of experts and politicians have faced an outcry from conservative political groups and opposition parties and trade unions in Germany.
The 13-member commission’s detailed report is due to be officially released on Tuesday, but key proposals were leaked to German media this weekend, sparking a flurry of reactions. Government circles in Berlin say the Cabinet is expected to agree on a plan based on reforms in the near future.
Speaking to the public at a federal government open day event in Berlin on Sunday, Chancellor Friedrich Merz insisted that reform was the only way to ensure that Germany’s expensive pension system would be affordable in the future.
Federal Labor Minister Barbel Baas, of the centre-left Social Democratic Party (SPD), also defended the need for reforms. “Now we are taking measures for the younger generation so that they get more pension,” he said. “And we need to make sure that fewer people take early retirement.”
Major Pension Reform Proposal
The proposals – which are being presented earlier than initial planning, partly due to government pressure – include a mix of compromises and some long-overdue ideas.
- Legal pension age linked to life expectancy
Germany’s legal retirement age is to be made dependent on life expectancy, which according to the Commission’s calculations would mean it would reach 67.5 in 2041, 68 in 2051 and 70 by 2091.
This has been criticized by leftist voices. Philippe Turmer, head of Jusos, the youth organization of the Social Democratic Party (SPD), told the public broadcaster DLF It would have been appropriate to limit the retirement age to the number of years one has contributed to the system.
Jan Sharpenberg, a pensions expert at financial advice firm FinanzTip, said the idea made sense, although given current life expectancy forecasts it would not make much of a difference in the near term.
- No early retirement at 63
If someone has paid into the system for 45 years, this proposal would reduce the option to go into early retirement at age 63 without losing any benefits. The idea has been particularly criticized by industrial trade unions, who say their workers are particularly vulnerable to physical and psychological stress. Christian Benner, head of the IG Metall union, told DLF that the proposal “completely ignores” the living and working conditions of industrial workers.
Sharpenberg said this would indeed be felt by some as a “bitter cut”. “It’s probably necessary, but it’s certainly a tough cut,” Sharpenberg said. Another cut would see an increase in benefit cuts for people taking early retirement. “This can also be criticized, but the current situation is that the cuts are too small, making it more worthwhile for many Germans to retire early,” he said.
This change is likely to affect many German workers: A recent Forsa Institute survey conducted for the public health insurer DAK found that 44% of Germans would like to take early retirement, and the longer people work, the more likely they are to take sick leave.
- Pension invested in capital market
About 0.5% (rising to 2%) of workers’ pension contributions is to be invested in the capital markets. Here, the Commission expert took its inspiration from Sweden, where pensions are not financed exclusively by workers’ contributions. Meanwhile, in Germany, about 18% of gross income goes directly into pension payments.
“It’s a good idea, but it certainly depends on the details,” he said. “In my opinion, one of the most important things Sweden did was to set up a special pension commission, where every party is represented, whether in government or not.” This will make the Swedish model more independent from changing governments and plans. It is not yet clear whether Germany will follow that path, he said.
- More contributors, less civil servants
Another part of the plan is to reform the system to allow fewer people to become civil servants, because in Germany, civil servants contribute to their own special state pension scheme. Labor Minister Baas wanted the system to be abolished entirely, forcing civil servants to be paid directly into the same system as everyone else.
As a compromise, the Commission proposed that civil servant pension levels should be brought into line with the common pension system. Public broadcaster ZDF also reported that the commission wants to reduce the number of people allowed to become civil servants.
Overall, Scharppenberg said he was cautious about his decision until the commission’s full report was published on Tuesday. “But in principle, we can say it’s going in the right direction,” he told DW.
Edited by Reena Goldenberg