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Why the German pension reform is threatened with further delays

Imogen Goodman
Imogen Goodman - [email protected]
Why the German pension reform is threatened with further delays
A mobility device stands outside a shop in Bad Wörishofen, Bavaria. Photo: picture alliance/dpa | Karl-Josef Hildenbrand

Germany's Free Democrats (FDP) say they may vote against the pension reform if it leads to higher pension contributions for workers.

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According to a report in the Bild newspaper, a planned vote on Germany's package of pension reforms in early July could be pushed back by months amid another round of coalition infighting.

The shake-up of pensions - termed the Rentenpaket II - faced numerous delays before being voted through in cabinet in May 29th, with the FDP raising concerns over public spending and early retirement rules.

Following the greenlight from ministers, several FDP politicians have reportedly told Bild they plan to vote against the bill in parliament if the plans would cause a hike in contributions. 

"I will not agree to any pension package that leads to higher pension contributions," Max Mordhorst, deputy chairman of the CDU's parliamentary youth group, told the newspaper. "The current package is a kick in the knees for all young working people."

Bild reports that parliamentary deliberations on the pension reforms won't begin until after deliberations over the 2025 budget are concluded on July 3rd.

This would effectively delay the discussions until after the summer recess.  

READ ALSO: Why a row has broken out in Germany over pension reforms

"We still have a lot to discuss regarding the pension package," FDP finance politician Frank Schäffler told the daily newspaper. "One thing is clear: first we have to reach a budget agreement, then we can talk about changes to the pension package. That won't be the case before autumn."

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A core policy of the traffic-light coalition, the Rentenpaket II aims to shore up Germany's pension funds in future decades and guarantee a stable rate of 48 percent. 

According to the draft bill that was signed off on in cabinet in May, the proposals could lead to significant increases in the contribution rate and a more state subsidies flowing into pension insurance from 2028. 

Pension contributions in Germany are currently set at 18.6 percent of gross income, split equally between employees and employers at a rate of 9.8 percent each or paid in full by self-employed workers and freelancers.

This could potentially rise as high as 22.3 percent in the coming years, the draft law predicts. 

Germany's Finance and Labour ministers standing side by side

Hubertus Heil (right), Federal Minister of Labor and Social Affairs, speaks alongside Christian Lindner (left), Federal Minister of Finance, during a press statement on the new planned Pension Package. Photo: picture alliance/dpa | Michael Kappeler

Uncertain future

In light of Germany's aging population and longer life expectancies, there are fears that Germany will struggle to bear the weight of ballooning social costs in the future.

With the baby boomer generation entering retirement amid an ongoing shortage of younger workers, the ratio of people paying into the pensions pot compared to those taking out is becoming increasingly unbalanced.

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To tackle this issue, the traffic-light's pension reforms include 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. 

Without this step, pension contributions could rise to 22.7 percent over the coming decades, the government has warned. 

READ ALSO: How Germany plans to stabilise pension contributions

In recent months, social organisations have expressed concern that the proposals to stabilise pensions could become the victim of horse-trading between the three governing coalition partners. 

"The pension package must be passed before the summer break and must not be torn apart in a budget dispute," Verena Bentele, president of the VdK social association, said in May.

"Without a stabilisation of the pension level, there is a risk that old-age and reduced earning capacity pensions will plummet in future," she added. 

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