Germany’s Pension Overhaul: Younger Workers Stand to Gain Most as Costs Rise and Key Benefit Faces Axe
Published on 07/17/2026 at 20:05 | Redaktion boerse-global.de
Germany’s planned shift to a state-backed capital pension, set for introduction in 2028, has drawn fierce criticism from social welfare organisations, who argue the system still favours privileged groups. The Sozialverband Deutschland (SoVD) pointed to a glaring disparity: while the average statutory pension sits at €1,289 per month, the average civil-service pension reaches €3,416. An expert from the group also questioned whether the new capital element can truly stabilise the overall replacement rate.
Under the government’s design, workers will contribute 2% of their gross salary to the new capital pension, split evenly between employer and employee. Expected annual returns range from 5% to 9%. The potential accumulation varies sharply by age:
- A 20?year?old entering the workforce today could amass up to €392,800.
- A 40?year?old would see a maximum of €172,700.
- Someone aged 50 might build €64,500.
- A 60?year?old would achieve just €14,000.
For a saver starting at 30, the monthly extra pension could reach around €1,000.
To manage the projected millions of accounts, the state?owned fund Kenfo has put itself forward. Originally created to finance Germany’s nuclear phase?out, Kenfo already oversees €25.6 billion and has delivered an average return of 6.1% since 2017. Despite geopolitical shocks, including the Iran conflict, the fund posted a 7.9% return in the first half of 2026. CEO Anja Mikus has offered to handle the accounts of up to 35 million workers, with administrative costs capped at 0.1% of assets.
Meanwhile, the cost of the traditional pay?as?you?go pillar is climbing. The contribution rate – currently 18.6% – will jump to 19.9% in 2028 and to 20.0% in 2029. The Deutsche Rentenversicherung projects rates between 22.0% and 22.3% by 2035. The driving factor is a shrinking sustainability reserve, which stood at €41.3 billion at the end of 2025 but is forecast to fall to roughly €11.9 billion by the end of 2027. To keep the pension level at 48% of average earnings, the federal government will inject €12 billion annually from 2026 into the so?called “generation capital”, aiming to build a €200 billion stockpile by the mid?2030s.
A separate reform package from the pension commission contains 33 proposals, the most dramatic being the abolition of the early?retirement “Rente mit 63” scheme without deductions. Economists estimate this would relieve social?security funds by about €10 billion per year. The statutory retirement age would also rise in a 2?to?1 ratio with life expectancy, gradually reaching 67.5 years between 2031 and 2041. Minijobs (low?wage part?time positions) are to be fully integrated into social insurance. Chancellor Merz has stressed, however, that a complete elimination of such jobs is not on the table.
The first concrete steps in the pension overhaul will not be implemented before early 2027.
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