German Employers Warn Pension Reform Could Cost Firms €40 Billion Annually

Germany’s main employer association has issued a stark warning that the government’s planned pension overhaul risks saddling businesses with more than €40 billion in extra annual costs. Rainer Dulger, president of the Federation of German Employers’ Associations (BDA), said the introduction of a so-called capital pension—funded by an additional 2 percent contribution rate—would hit companies hard once fully implemented by 2030.

The reform, championed by Chancellor Friedrich Merz and Labour Minister Hubertus Heil, is currently slated for unchanged passage. Dulger, however, called for fundamental corrections, arguing the package in its present form threatens corporate competitiveness.

The BDA’s concerns extend beyond the new capital pension. Dulger projected that the overall pension insurance contribution rate would climb from the current 18.6 percent to 22 percent by 2031. To soften the blow, the employer group has proposed capping the capital pension’s contribution assessment threshold at €52,000—a measure it says would prevent disproportionate burdens on higher-wage industries.

Slower Pace on Retirement Age Draws Fire

Despite the sharp criticism on costs, Dulger offered qualified praise for certain structural elements of the reform. He welcomed the planned demographic adjustment, which includes ending penalty-free early retirement, as well as the gradual increase of the statutory retirement age to 67.5 years by 2041.

Yet the pace of that increase drew his strongest rebuke. Dulger described the timeline as far too slow, urging a faster schedule to stabilise social security systems without driving up non-wage labour costs. Germany’s ageing population, he argued, demands more decisive action.

Minijobs and Block Model Under Threat

The BDA also took aim at proposed changes to Germany’s labour market. Dulger forcefully rejected the government’s plan to scrap the tax and social security exemption for minijobs—the country’s popular low-hours employment model. He called the flexibility essential for many sectors and warned that new bureaucratic or financial hurdles would harm both employers and workers.

Additionally, Dulger defended the retention of the block model for Altersteilzeit (partial retirement), a scheme that allows employees to reduce hours gradually before full retirement. The government’s current proposal would abolish this arrangement, a move the BDA opposes. Dulger stressed that proven transition tools must remain available to offer companies and staff flexible pathways out of the workforce.

With the coalition signalling it intends to push the reform package through without major changes, Dulger has pressed for a parliamentary process that gives greater weight to employer concerns. The debate now shifts to Berlin, where lawmakers will weigh the economic impact against the long-term solvency of Germany’s pension system.

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