Unchanged response age stability?
German Pension Act: Key Reforms Announced for 2027
The German government has unveiled a series of reforms aimed at stabilizing and improving the pension system, set to take effect from 2027. The proposed Pension Act focuses on several key changes, including maintaining and extending the pension level, increasing pension contributions, enhancing the mother's pension, and strengthening occupational pensions.
Maintaining the Pension Level and Increasing Contributions
The pension level, or "holding line," will be maintained at 48% until 2031, ensuring retirees receive 48% of their net income during working life. To fund this, pension contributions will increase by 0.2 percentage points from 18.6% to 18.8%, split equally between employers and employees (9.4% each).
Enhancing the Mother's Pension
Benefits for people who had children before 1992 will rise by approximately 20 euros per month per child. This subsidy compensates parents, mostly mothers, who took time off work for child-rearing and thus contributed less to social security.
Recognizing Child-Rearing Times
The reform makes no mention of further direct changes to child-rearing recognition times, but the mother’s pension increase effectively supports those who invested time in child-rearing before 1992.
Funding Sources
The rise in contributions is the primary mechanism for financing these changes, with the government and social partners sharing the burden. Discussions about potential new levies, such as a "boomer solidarity levy" targeting wealthier retirees, remain a think tank proposal and are not part of the official Pension Act reforms.
Strengthening Occupational Pensions
Occupational pensions are being strengthened, including options for automatic deferred compensation and more flexible payment models for company pensions.
Summary of Changes and Impact
| Aspect | Change | Impact | |--------------------------|-----------------------------------------------------------------------------------------|------------------------------------------| | Pension level | Maintain “holding line” at 48% until 2031 | Stable pension benefits amid demographic challenges | | Pension contributions | Increase from 18.6% to 18.8% (0.2 pp increase) in 2027, split equally between employer and employee | Higher immediate cost for workers and companies to support pensions | | Mother's pension | Increase by ~20 euros/month per pre-1992 child | More generous compensation to parents, especially mothers | | Child-rearing times | No explicit change, but enhanced mother's pension indirectly recognizes this | Supports parental pension entitlements for earlier child-rearing periods | | Funding sources | Increased pension contributions primarily; possible discussions about further levies for retirees | Ensures financing of pension level without raising retirement age beyond plans | | Occupational pensions | Strengthened with options for automatic deferred compensation and flexible payment models | Improved complement to statutory pensions |
These reforms seek to protect retirees' income by balancing contribution increases and pension subsidies, while supporting parents and improving occupational pensions. The Bundestag is expected to decide on the draft of the Pension Act by the end of the year.
[1] Source: German Federal Ministry of Labour and Social Affairs [3] Source: Working Group for Occupational Pensions (ABA) [5] Source: German Institute for Economic Research (DIW)
- The proposed German Pension Act, aimed at revamping the pension system, includes a policy for maintaining the pension level at 48% and increasing contributions, two key elements of business finance.
- In the context of education-and-self-development and family-oriented policies, benefits for mothers who had children before 1992 will increase, as part of the German Pension Act reforms.
- As part of politics and policy-and-legislation discussions, potential new levies, such as a "boomer solidarity levy," are being explored to further fund pension system improvements, although they are not yet part of the official Pension Act reforms.
