Germany Unveils Sweeping Pension Reform: Mandatory Capital Fund and Later Retirement Age Tied to Life Expectancy

After roughly 150 hours of debate, a 13?member commission has handed Germany’s government a radical blueprint for the country’s pension system. The official report will be delivered on June 23, 2026. Its two pillars are a compulsory capital?backed pension modelled on Sweden’s system and a mechanism that automatically lifts the retirement age as average longevity rises.

Life expectancy becomes the new rulebook

From 2031, the standard retirement age will move in lock?step with the nation’s average lifespan. For each additional year of life expectancy, people will work eight months longer and draw a pension for four extra months. The experts’ projections are stark: by 2041 the retirement age could hit 67.5 years, climb to 68 by 2051, and potentially reach 70 in the 2090s.

Alongside that change, the commission wants to scrap the early?retirement option known as “pension at 63” without deductions. For those with particularly long contribution records, the age for taking early benefits would gradually rise from 63 to 64. A new safeguard is proposed: workers who pass a health check could still retire two years early without any deduction.

Funding the future with a Swedish?style pot

The reform’s second core element is a mandatory capital pension, due to start in 2028. Contributions will begin at 0.5 percent of gross salary and gradually increase to 2 percent, split equally between employee and employer. A state?run fund will invest the money.

The aim is to keep the overall pension level, currently around 48 percent of average earnings, stable until 2031. From 2040, combining the pay?as?you?go system with invested capital could lift that ratio to 50 percent. The so?called sustainability factor, which adjusts pensions to the ratio of contributors to retirees, will be fully reactivated in 2032.

Without any reforms, the contribution rate to the statutory pension insurance would have to jump to roughly 20 percent as early as 2028.

Bringing in new contributors and recalibrating minijobs

To broaden the revenue base, the commission proposes that self?employed people, members of parliament, and board members of publicly traded companies start paying into the statutory pension system. Civil servants are excluded for now, but the panel recommends creating a dedicated reserve for their pensions instead.

The treatment of “minijobs” – low?paid, often tax?free positions – would also change. Only school pupils would still be allowed to hold a minijob without paying contributions. In the means?tested basic?income scheme for old age, a new allowance of 20 to 30 percent of the statutory pension is planned, so that individual contributions during a working life produce a clearer benefit later.

Sharp reactions from unions and business

The proposals have immediately split opinion. Approval came from the Seniors’ Union and the Young Union. Germany’s Council of Economic Experts and the DIW research institute view the direction positively – though DIW economist Marcel Fratzscher criticised the measures as too timid.

Unions and the political left pushed back hard. Verdi chief Frank Werneke called the plan unrealistic. IG Metall argued that raising the retirement age effectively amounts to a pension cut, because many workers cannot physically stay on the job until 68. The AfD complained that citizens would have to work longer and pay higher contributions.

Chancellor Friedrich Merz described the reforms as necessary. Labour Minister Bas emphasised that existing rights would be protected through transition periods. The coalition government aims to finalise the package before the summer parliamentary break.

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