Germany’s pensions commission has handed its proposals for reform to chancellor Friedrich Merz and labour and social affairs minister Bärbel Bas, who plan to implement all 33 recommendations, including the creation of a funded element of the state pension and linking state pension age to life expectancy.  

As the UK awaits its own reports on state and private pensions amid government change, Germany is facing its own demographic and political pains – so how is its European neighbour planning to revamp pensions?  

Germany's pensions commission has today handed its report to the coalition government, containing more than 30 recommendations, which the government has already said it wants to adopt. 

While the system will continue to be earnings-related, one brand new element is the creation of a funded part of the state pension, with employees and employers asked to make an additional 1% state pension contribution each, on top of the 9.3% each side currently contributes before tax up to earnings of €101,400 (£87,500). This recommendation is inspired by the Swedish model, where 2.5% of state pension contributions are invested.

A target replacement rate also features prominently. Germany’s state pension will continue to aim for about 48% of the average salary before tax, but the commission recommends that factoring in non-state pensions, a replacement rate of 70% after tax should be aimed for. 

The reforms also want to link the state pension age, already set to rise to 67 in 2031, to life expectancy; this could mean it rising to 68 in 2051, German media report. Changes in longevity are recommended to be split between working age and pension age at a ratio of two to one, which would mean a gradual increase of the state pension age by about six months between 2031 and 2041, Focus online writes on Tuesday.  

An option for people who have contributed for at least 45 years to retire on a full state pension at 63 might be changed so that the early retirement age increases in parallel with the normal state pension age.  

A health check at age 45 is also part of the recommendations, and possibly a second at age 63. The commission says that people who already receive a partial pension due to health reasons but who want to work again should be able to do so. Meanwhile, those close to pension age who can evidence that they are unable to continue doing their job should have access to their pension without any obligation to retrain, according to Focus.

Germany’s government also wants to extend state pension coverage of the self-employed, who will in future have to contribute. Contributions are currently voluntary except for certain independent professions. In addition, the self-employed could become eligible for government incentives to save into a personal pension.  

Reforms of personal pensions have already been passed and will come into force in 2027. This will involve providers offering products with flexibility to invest in equities and exchange-traded funds, being no longer bound by a requirement to provide a guarantee, although guaranteed products will remain available. The decumulation phase will in future not have to cover the entire retirement phase and can instead be limited. 

Among the commission’s other recommendations is extending the digital overview of pensions and whole-of-life financial education strategy. 

The UK’s pensions commission is due to report in spring next year, while a review of the state pension age is expected soon.