The countdown has begun and in Berlin no one wants to waste time. With the pension system under pressure due to an aging population and an ever-shrinking pool of contributors called to support a growing number of retirees, Chancellor Friedrich Merz and Labor Minister Bärbel Bas have chosen a clear line: the reform developed by the pension commission must be implemented without dismantling its parts. “Within the coalition we agree that this package will be fully implemented,” Merz explained during the official presentation of the recommendations, “we cannot afford to pick some measures and give up others.”
Bas also insisted on the need to consider the reform as an indivisible whole. She described the package as “a comprehensive work” in which every element depends on the other: if applied as conceived, the system revision will bring widespread benefits.
A DEEP TRANSFORMATION
The declared goal is twofold: to gradually increase pension levels and contain the growth of contributions. Among the points most dear to the executive is the introduction of a mandatory funded component. According to Merz, this choice will lighten the burden currently borne by younger generations and make the system more balanced in the long term.
The 33 recommendations formulated by the government commission outline a profound transformation of the German pension model. The problem to address has been known for years: an increasingly elderly population and unfavorable demographic dynamics risk putting public finances under pressure. Hence the decision to intervene simultaneously on retirement age, financing methods, and the pool of contributors.
PENSIONS LINKED TO LONGEVITY, END OF QUOTA 63
One of the most delicate interventions concerns precisely the retirement age. Starting from 2032, the pension threshold should be linked to life expectancy. The mechanism identified follows a two-to-one ratio: each additional year of life expectancy would result in an eight-month increase in working activity and a four-month extension of the retirement period. Simulations developed during the debate indicate that this system would raise the retirement age to 67 and a half in 2041, to 68 in 2051, and in the second half of the century, nearly reaching 70 years.
At the same time, the possibility of leaving work without penalties after 45 years of contributions would be eliminated, the mechanism that in the past had fueled the so-called 63-year pension. The commission also considers it necessary to set a non-negotiable minimum threshold for early retirement. Even accepting financial cuts, it would no longer be possible to retire before 64. In compensation, for those affected by serious health problems or reduced working capacity, a strengthening of disability-related benefits is proposed.
CRACKDOWN ON MINIJOBS
The recommendations also affect part-time work in the final phase of a career. The minimum age to access these schemes would rise from 55 to 58 years and the so-called block model, which allows concentrating work in the first half of the period and then completely stopping activity while continuing to receive part of the salary, would be abolished.
The experts who prepared the report believe this system encourages disguised retirement and is incompatible with the goal of keeping people longer in the labor market.
In the same spirit is the revision of minijobs. The commission proposes to eliminate the exemption from social security contributions for almost all workers performing these activities, leaving it only for students. The intention is to increase the contribution base and reduce the risk of poverty in old age.
FINANCIAL MARKETS ENTER PUBLIC PENSIONS
On the financial side, the most significant novelty consists in creating a funded component within the public system. An initial share equal to 0.5 percent of contributions would be invested in financial markets, with a progressive increase up to 2 percent. The idea is to create over time additional returns capable of supplementing future pensions.
At the same time, the commission proposes extending the contribution obligation also to categories so far excluded or governed by autonomous rules, such as self-employed workers, parliamentarians, political figures, and members of boards of directors of joint-stock companies. At a later stage, the principle could also be extended to public officials.
For those receiving very low pensions and dependent on basic subsidies, a deductible is introduced. A portion of the pension, between 20 and 30 percent, would not be fully counted in the calculation of social benefits, allowing beneficiaries to retain a larger share of their income.
THE GOVERNMENT WANTS TO ACCELERATE
The political debate has just begun and divergent positions are already emerging. Economists view the overall structure of the reform favorably, considering it necessary to preserve fiscal sustainability.
The unions, instead, look with growing concern at the continuous postponement of the retirement age. For the Merz government, the challenge will now be to turn these recommendations into a bill before the Bundestag summer break, finding a balance between financial discipline and maintaining the social pact that has accompanied the German model for decades.
