Pensions in Germany: a system undergoing reform
The statutory pension is the most important pillar of retirement provision. But demographic change poses challenges for its funding.
Wolf Zinn The good news is that people in Germany are living longer and longer. The less good news is that fewer and fewer young people are entering the workforce. This combination is putting the German pension system under increasing pressure. By 2035, one in four people is expected to be aged 67 or over, while the number of young people is likely to continue falling. This means that fewer people in work will have to finance the pensions of a growing number of older people.
At the heart of the system is the statutory pension insurance scheme. It operates on a pay-as-you-go basis: today’s employees and employers each pay half of the contributions used to fund current pensions. In 2026, the contribution rate is 18.6 per cent of gross salary. Contributions alone, however, are not enough. The pension insurance scheme therefore also receives funding from tax revenues – an estimated 127 billion euros in 2026.
Employees are generally required to pay into the scheme. Civil servants usually have their own pension arrangements, while not all self-employed people pay into the statutory scheme. The statutory pension is supplemented by occupational and private pension provision.
How much pension do people receive?
The amount of pension received depends primarily on income and the length of time contributions have been paid. Anyone earning the average salary for one year receives one pension point. The pension is ultimately calculated on the basis of the total number of points accumulated.
For people born in 1964 or later, the standard retirement age is 67. The pension level currently stands at 48 per cent and is guaranteed by law until 2031. Put simply, someone who earns the average salary and pays the corresponding contributions for 45 years will receive a pension equivalent to around 48 per cent of the current average salary (currently 4,329 euros gross per month). Individual pensions can differ considerably from this figure, however.
Reforms aim to stabilise the pension system
Without reforms, contributions and tax subsidies would rise in the long term or the pension level would fall. When presenting the proposals of a pension commission appointed by the Federal Government, Federal Chancellor Friedrich Merz therefore said: “Doing nothing is not an option.”
The commission presented 33 recommendations in June 2026. An additional statutory funded pension scheme is to supplement the pay-as-you-go system, while employees and employers would gradually contribute an additional two per cent of gross salary, with the money invested in the capital markets. The scheme is also to be extended to cover more people, initially including new self-employed workers and members of parliament. In addition, the retirement age is to be linked to life expectancy after 2031. Based on current assumptions, it could rise from 67 to 67.5 by 2041. The most controversial proposal is to end the option of retiring without deductions after 45 years of contributions.
