Government's legislative move towards securing reliable pension benefits: Cabinet initiates bill for passage
The German federal cabinet has approved a draft for a pension law that aims to maintain a stable pension level until 2031 and improve pensions for millions of mothers. The key details of this comprehensive reform package are as follows:
- Pension level ("Haltelinie") maintained at 48% of net income until 2031. This guarantees retirees receive at least 48% of their working-life net income as pension, an extension of the previous legal guarantee up to 2025.
- Pension contribution rate will increase by 0.2 percentage points, from 18.6% currently to 18.8% starting in 2027. This cost will be split equally between employee and employer (9.4% each).
- Increase in the "mother’s pension" (Mütterrente): Pension benefits will rise by about €20 per month for parents (mostly mothers) who had children before 1992. This compensates for career breaks taken to raise children and will cost around €5 billion annually once effective January 1, 2027.
- Additional reforms include expanding eligibility for mothers’ pension, potential extension of social security to self-employed and civil servants, and introduction of an active pension scheme allowing retirees to earn up to €2,000/month tax-free.
The reform will keep retirement benefit levels stable, slightly raise contribution rates starting 2027, boost pension subsidies for older parents, and faces scrutiny over intergenerational fairness and cost sustainability for taxpayers and employers.
- Impact on taxpayers and employers:
- The reform will increase pension contributions, raising labor costs.
- Employers’ associations criticize the package as very costly (approx. €50 billion through 2031) and warn it risks burdening younger generations unfairly without securing long-term sustainability.
- The government aims to keep the welfare state affordable but is facing demographic challenges that stress the pension system.
- Parental leave credits and maternity-related changes:
- Apart from pension aspects, new labor law measures in 2025 include expanded maternity protections and more flexible parental leave notifications, but these are separate from pension contribution reforms.
The pension expenditure, including health insurance for pensioners, will increase from 394.4 billion euros this year to 476.3 billion euros in 2029. The bill outlines that the contribution rate for pensions is expected to rise to 18.8 percent of gross wages in 2027, with the rate remaining stable in 2026.
Economics Minister Katherina Reiche has proposed raising the retirement age, but Social Minister Steffens has distanced herself from this idea, stating that it would result in a pension reduction for many people who cannot work that long. The Bundestag is expected to pass the draft by the end of the year. From 2027, the pension contribution is set to rise from the current 18.6% to 18.8%.
In addition, a commission is to be set up in 2026 to work out proposals on how the pension system can be financed in the long term. The reform will also equalize the crediting of parental leave, providing three full years instead of the current two and a half for children born after 1992, affecting around ten million people, predominantly women. The reserves of the pension funds are to be increased from 20% to 30% of a monthly expenditure.
The coalition is making it easier for those who want to continue working for their employer in retirement, but it is not forbidden to work longer beyond the retirement age. The pension law is intended to make it easier for seniors to continue working for their employers in retirement.
- The reform in the German pension law will lead to an increase in pension contributions, potentially impacting both taxpayers and employers due to raised labor costs.
- The pension reform, including improvements for older parents and the introduction of an active pension scheme, falls under the broader context of general-news topics, such as business, finance, and politics.
