German Pension Commission Proposes Mandatory Capitalized Fund and Gradual Retirement Age Increase to 70
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A cross-party German commission proposed a mandatory funded pension pillar and a gradual retirement-age increase to 70, marking the deepest structural pension overhaul in decades — a direct response to pension spending already consuming a quarter of the federal budget.
What is wrong with the current system?
Germany's pension is pay-as-you-go — today's workers fund today's retirees. When the workforce shrinks, the math breaks.
In 2024 the federal government spent €118 billion to cover the pension gap — roughly one quarter of total budget spending.
This means → without reform, economists estimate that share could double to 50% within twenty years — half the federal budget going to pensions alone.
In plain terms = by 2036, 16.5 million baby boomers will retire, while only 12.5 million new workers enter the labour force. The gap cannot close on its own.
How would the new fund work?
The commission proposes a mandatory, individual-account funded pension modelled on Sweden's system.
Workers and employers would each contribute, with the rate set at 2% of wages; money would be pooled and invested in capital markets.
This means → this is not a replacement for pay-as-you-go — it is an additional layer on top, using investment returns to cover future shortfalls.
Officials say the fund would be designed to guarantee pensions even through a 2007-level financial crisis.
How would the retirement age change?
The statutory retirement age would be linked to life expectancy and gradually raised to 70 by the early 2090s (the current plan reaches 67 in the early 2030s).
The existing penalty-free early retirement at 63 would be abolished; the age at which 45-year contributors receive a full pension would also rise.
In plain terms = the longer people live, the later they retire — an actuarial auto-calibration that ties the retirement age to demographic reality.
Why are civil servants and "mini-jobs" being pulled in?
The commission recommends bringing civil servants and parliamentarians — currently exempt — into the statutory pension system, widening the contribution base.
It also targets "mini-jobs" — a low-pay, low-tax employment format dating to the Schröder era — by requiring employers to pay full social-insurance contributions on these positions.
This means → many women stuck in mini-jobs have limited pension entitlements; the reform aims to push them into full-time, formally insured work.
Economist Jens Südekum added that some fund capital could flow into infrastructure, addressing Europe's structural lack of large-scale investment vehicles.
Can this package actually pass?
Chancellor Merz called it "a comprehensive package that only works as a whole"; the coalition has agreed to "full implementation," targeting legislation this year.
Broad consensus already exists within the commission. Adviser Südekum said "it will be hard for the government to produce a plan that doesn't follow these recommendations."
Yet political risk is real: pension reforms in France and the UK recently triggered fierce public backlash, and unions are expected to oppose the retirement-age increase.
This reflects a deeper fragility — Merz's government has low approval ratings and rising coalition tension between the CDU and SPD. Whether legislation clears parliament before the summer recess is the first real test.
Content is for reference only, not financial advice.