Germany’s coalition government has laid out its new plan for the country’s statutory pension scheme, under which it will buy stocks from international capital markets to finance the system long-term.

Lindner and Heil introduce new pension plan for Germany

Speaking at a press conference in Berlin, German Finance Minister Christian Lindner (FDP) and Minister for Labour and Social Affairs Hubertus Heil (SPD) have announced details about how Germany’s statutory pension system is set to change.

Under the new system (the Rentenpaket II), the German government will buy stocks across an international capital market. These stocks will be a new source of funding for the statutory pension system, with the long-term goal of easing the cost of pension contributions for individuals and taking pressure off the government budget. According to the plan, the government hopes to build up at least 200 billion euros of stocks by the mid-2030s. 

The government wants to use these finances to reduce the Rentenniveau or “pension level” to 48 percent, and keep it at 48 percent. The Rentenniveau, which currently sits at 48,2 percent, is the percentage of the current average German wage that a pensioner who has paid into their pension fund for 45 years, receives when they retire. If the reform were not introduced, a recent pension insurance report predicts that the Rentenniveau would fall to 45 percent by 2037.

Lindner and Heil also took the press conference as an opportunity to say that the Rentenpaket II reform would not be the last retirement reform in the near future, explaining that the volume of workers in Germany must increase and that the retirement age could rise.

What are the criticisms of the Rentenpaket II?

Criticisms of the plan have come from Green Party, which believes that economic volatility means it is too risky for the government to use investments on the international market to fund statutory pensions. Vice Chancellor Robert Habeck (Greens) initially blocked the Rentenpaket II when Heil wanted to launch it over a year ago.

Germany’s social welfare association the VdK, is also sceptical. Speaking to ZDF, VdK representative Verena Bentele said that the government should instead focus on widening the pool of workers who are obliged to pay into Germany’s statutory pension system. “[C]ivil servants, members of parliament and freelance workers should pay into the state pension scheme, that would better achieve the goals than investing in stocks,” Bentele argued.

Why does Germany urgently need to change its pension system?

With Germany’s population ageing and its workforce shrinking, the country desperately needs to find a new way to fund its pension system. 

Currently, working-age people in Germany pay the pension funds of people who are retired, rather than retired people receiving the money they paid into their fund during their working lives. 

In 1992, 2,7 people working people funded the pension payments of one retired person, but thanks to demographic changes, this burden now falls on 1,8 people, according to 2020 figures. By 2030, just 1,5 people will be responsible for paying the pension of one retiree.

There are also hopes that Germany’s new immigration laws and Chancenkarte, which make it easier for skilled workers from third countries to come and work in the federal republic, should ease the worker shortage and balance an ageing population.

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