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Why a row has broken out in Germany over pension reforms

Rachel Loxton
Rachel Loxton - [email protected]
Why a row has broken out in Germany over pension reforms
Senior citizens in Binz, Germany. Photo: picture alliance/dpa | Stefan Sauer

Government parties in Germany are in a bitter row over the future of pensions and retirement in Germany. Here's a quick overview of what you need to know.

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Germany's coalition government is having a rough time of it. 

Since the three parties - the Social Democrats (SPD), the Greens and the Free Democrats (FDP) - entered a coalition after the federal election in 2021, they have seen a significant dip in popularity according to polls. 

Despite some high profile policy achievements, such as citizenship and immigration reforms as well as the partial legalisation of cannabis, the coalition's reputation has been marred by infighting. 

And the latest sticking point is pension policy. 

READ ALSO: Is it worthwhile to set up a private pension plan in Germany?

What's the issue with pensions?

Last week, a high profile and long-awaited approval by the cabinet on a package shaking up pensions in Germany - called Rentenpaket II - was postponed. 

According to reports, Finance Minister Christian Lindner (FDP) had the topic removed from the agenda - effectively blocking it from moving forward.

That is despite Lindner agreeing on the pension reform, along with Labour Minister Hubertus Heil (SPD) and Economics Minister Robert Habeck (Greens), months ago.

The package, which Heil and Lindner presented in March, is intended to guarantee a pension level of 48 percent for the future -- meaning that pensions would equate to 48 percent of your average salary over the course of your working time.

The government also plans to invest billions in the capital market and pay annual subsidies to the pension insurance from the interest earned starting in the mid-2030s. It means that in addition to the contributions and subsidies from the federal budget, the pension insurance scheme would receive a third source of funding.

READ ALSO: How Germany plans to stabilise pension contributions

But the final go ahead for the package has been stalled due to various disputes on social security and pensions -- including over the budgeting for it. 

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FDP calls for 'fair' budget policy 

The situation has got further complicated -- and messy -- after the FDP spoke out once again in favour of restricting early retirement at 63 in Germany, as part of a new policy paper urging a 'budget turnaround'.

In the five-point paper on the welfare state, the Finance Minister's party warns of the consequences of the current pension package, saying it will "overburden" budgets with too much spending on social welfare. 

The FDP's Christian Lindner has been rocking the coalition boat this week.

The FDP's Christian Lindner. Photo: picture alliance/dpa | Jessica Lichetzki

The FDP says it wants a "budget policy that is fair to all generations". They want to see reforms to the social system as well as restricting access to early pensions for those who qualify. 

The latest policy paper, which the FDP plans to adopt at an executive meeting on Monday, echoes what the party has said previously in a 12-point plan aiming to 'turn the economy around' where it outlined how long-term unemployment benefit sanctions should be tougher. 

READ ALSO: Why a push for tougher benefit sanctions in Germany is sparking a dispute

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What's the reaction?

The FDP's plans have been met with criticism from its coalition partners, the SPD and the Greens.

SPD General Secretary Kevin Kühnert rejected the proposals, including to restrict retirement at 63. "We can't do that," Kühnert told German broadcasters on Monday. 

He firmly believes that the cabinet will approve the coalition's 'pension package II' in May as well as the 2025 budget in July.

"But everyone should now focus on the matter and publish fewer point papers," he added, in view of the FDP's recent pushes to assert its policies. 

However, it is unclear whether the FDP will agree to the pension package in its current form given the recent uproar. The decision to release these policy papers may also be a tactic to try and pull in potential voters ahead of the nationwide election in Germany in autumn 2025. 

Other politicians have hit out at the FDP. 

SPD party leader Saskia Esken told the Süddeutsche Zeitung that it wasn't helpful if negotiations on the 2025 budget were accompanied by party-affiliated position papers every week.

Esken also said social security in Germany is a "non-negotiable" for the party.

READ ALSO: How does Germany's retirement age compare to the rest of Europe's?

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