The Pension Commission plans to introduce a retirement age of 70 and raise the pension level to 50 percent through a new private capital pension scheme.
The reform package, which the commission presented on Tuesday, suggests that a portion of pension contributions will be invested in the stock market. Initially, 1 percent of the gross salary will flow into this capital pillar (0.5 percent paid by employees, 0.5 percent by employers). This contribution rate is set to rise later to two percent (1 percent from employees, 1 percent from employers). The new capital pension is particularly important for residents of Eastern Germany, as three-quarters of employees there currently lack supplementary retirement savings alongside the statutory pension. While mandatory corporate pension schemes are not planned, experts suggest they would be more bureaucratic than the proposed capital portion within the existing pension insurance framework.
The commission also proposes reintroducing the sustainability factor, which adjusts the annual pension increase based on changes in the contributor base. While this measure aims to curb future increases in contributions, it will also result in smaller annual pension increases. Under this model, the pension level is set at 48 percent upon starting retirement, but it will decline during the years the pension is drawn. This anticipated deficit is intended to be covered by the new capital pension. Commission projections suggest that the overall level of the pension insurance will rise to 50 percent by 2040, reaching 50 percent by 2050. The primary beneficiaries of this shift would be younger and middle-aged workers today.
Furthermore, the commission advocates for working longer and consequently proposes implementing the age of 70 for retirement in the long term. The retirement age is proposed to be linked to the expected increase in life expectancy starting in 2032. This linkage means the age limit will shift slowly: starting in 2042, the retirement age will increase by half a year every ten years. By the late 2090s, the age of 70 would apply, meaning that children starting school today would effectively have to work until age 70. However, early retirement based on 45 years of contributions would be abolished. Only individuals unable to work due to health reasons would be permitted to retire earlier.
Finally, the commission plans to expand the scope of contributors, requiring politicians, such as members of the Bundestag and state parliaments, as well as the self-employed and chairpersons of stock corporations, to contribute to the pension fund. Public servants, however, will remain excluded for the time being. Additionally, the commission supports the elimination of minimum-wage jobs that are exempt from pension contributions. In the future, only students will be allowed to work for up to 603 euros per month; everyone else must accept a position that includes pension contributions. This measure is intended to specifically combat old-age poverty among women.
