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German pensioners set to get a pay rise on July 1st

The Local Germany
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German pensioners set to get a pay rise on July 1st
Two elderly pensioners at the seaside in Timmendorf, Mecklenburg Western-Pomerania. Photo: picture alliance/dpa/dpa-Zentralbild | Jens Büttner

German ministers have cleared the way for a significant percent hike in pension this year, but the increase could still be rapidly eaten up by inflation.

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Following a vote in cabinet on Thursday, some 21 million retirees in Germany will see their pensions rise by 4.39 percent in the former West and 5.86 percent in the former East. 

The plans must still be voted through in the Bundesrat - Germany's upper house of parliament - but this is just a formality.

Once this vote is passed, the hike in pensions should come into force on July 1st.

The increase in pensions won't just mean more money for retirees, however: it also marks a significant moment in German history.

That's because it will see pensions in the eastern states officially catch up with those in western states - 33 years after reunification.

In previous decades, Germany has adopted a policy of raising the historically low pensions in the former DDR at a higher rate than those in the former West.

It had hoped that pensions would equalise in the different regions by 2024, but due to higher-than-expected wage growth in eastern states, this is due to happen one year ahead of schedule.

"The increase in the minimum wage to €12, from which many people in the new federal states (i.e. the former East) have benefited, has also contributed to this," explained Labour Minister Hubertus Heil (SPD).

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

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In western states, this is the third highest increase in pensions since reunification in 1990. Even in eastern states - where increases have typically been higher - a hike of more than 5.8 percent has rarely happened.

With the latest increase, pensions of €1,000 per month will go up by around €44 in the former Wast and €60 in the former East.

Loss of purchasing power 

Despite the scale of the increase, however, pensioners are still likely to see their living standards squeezed this year due to high inflation.

Last year, despite a record increase of 5.35 percent in the West and 6.12 percent in the East, the rise in pensions remained just below the inflation rate, which came out at 6.9 percent.

Normally, pensions increase on July 1st this year, with the rates linked to the development of wages in Germany.

READ ALSO: Why 2023 is a critical year for Germany’s retirement system

If wages fall, pensions are protected by the so-called pensions guarantee, which means that in the worse-case scenario, they only stagnate.

This has happened just a few times in recent history: in 2010 following the financial crash, and in 2021 in the wake of the pandemic. 

However, the government pledged that pensioners could recoup their losses with higher-than-average increases in 2022 and 2023. 

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