The Bundesrat, Germany’s upper house, has approved the controversial pension package proposed by the federal government, a move drawing criticism over its long-term financial implications and perceived prioritization of political expediency over sustainable reform. The legislation, passed on Friday, effectively freezes the current pension level – standing at 48% of average earnings – beyond 2025, preventing a projected decline in income for retirees.
The core of the package revolves around extending the “glide path” mechanism, which decouples pension increases from wage growth, until 2031. Government officials justify this extension by arguing that reverting to the previous formula would trigger a significant drop in the pension level and result in lower incomes for pensioners. However, critics argue the move merely postpones the inevitable, shifting the problem onto future generations and masking the deeper structural imbalances within the German pension system.
A key component of the legislation is the expansion of the “mother’s pension” scheme, recognizing a full three years of childcare for all children regardless of their birth year. While presented as a measure to promote gender equality, some economists question the financial sustainability of this broad expansion, particularly given Germany’s aging population and declining birth rate. The significant additional costs associated with this and other package elements will be covered by federal subsidies, raising concerns about the increasing burden on taxpayers and the potential distortion of fiscal priorities.
Further provisions aim to simplify the return to previous employers for those reaching the standard retirement age, removing restrictions within the Part-time and Limited-term Work Act. This element, while framed as a measure to aid workforce participation, is being scrutinized as potentially undermining future labor market flexibility and creating unintended consequences for employment contracts.
Included within the package is the “Aktivrentengesetz” (Active Pension Law), which allows individuals to earn up to €2,000 per month tax-free after reaching the standard retirement age of 67 while remaining in non-independent employment. While intended to incentivize continued workforce participation, the provision has been criticized for potentially exacerbating existing inequalities, as it primarily benefits those with the financial means to supplement their pensions.
The approval of the package, despite widespread debate and dissenting opinions, highlights the political pressures surrounding pension reform and the challenges of implementing long-term, fiscally responsible policies within an increasingly complex economic landscape. The legislation’s reliance on federal subsidies to mask rising costs raises questions about its long-term viability and signals a continued deferral of fundamental pension system reforms.
