Is the German pension system still safe?

2026-05-01 08:43:00, Kosova & Bota CNA

Chancellor Friedrich Merz caused surprise and uncertainty when he called the state pension "basic security." What did he mean by that? And where does Germany stand in international comparison?

Pensions, or pension provision, have been a highly controversial issue in Germany for years. This time, Chancellor Friedrich Merz (CDU) has also opened a serious debate in this regard.

"State-sponsored statutory pension insurance will, at best, only offer basic security for old age. It will no longer be sufficient to ensure long-term living standards," Merz said recently at an event organized by the German Banking Association in Berlin.

Merz went on to say that this is why individuals or private companies need to set aside additional capital. "And this on a much larger scale than we currently have, mainly based on voluntary contributions," Merz said. This means a greater reliance on stocks and other forms of investment in the future.

This is a controversial strategy, as the stock market is subject to large price fluctuations. Today's profits may be tomorrow's losses and vice versa.

Pensions Commission and proposals

The Minister of Labor and Social Affairs, Bärbel Bas (SPD), sharply criticized the Chancellor's statements on pensions. She said that Merz "gave the impression that everyone should now have private insurance." Many understood Merz's statements to mean that he thought "people will no longer receive a good pension."

The pension dispute between the ruling CDU/CSU and the SPD could be a hint of what could soon ignite further emotions. A pension commission appointed by the coalition is expected to present its recommendations by the end of June.

The financial consequences of an aging society

The main starting points for all sustainable pension models for the future are population trends on the one hand and life expectancy on the other. The low birth rate in Germany, as in many other countries, has serious financial consequences: Fewer people are working and paying contributions to the state pension system, while the number of pensioners is increasing.

The Organization for Economic Co-operation and Development (OECD) analyzed the pension systems of its 38 member states in the study "Pensions at a Glance." The main conclusion: Policy strategies vary widely and are difficult to compare in many respects.

Net pensions in Germany are below average

Looking exclusively at the amount of pension in relation to final income after taxes and social security contributions, Germany is in the middle at 53 percent and therefore well below the average of 61 percent. Other European countries with large populations, such as France and Italy, have values ??between 70 and 80 percent.

But there are greater extremes, both at the top and the bottom. In Estonia, Lithuania and Ireland, the level of state pensions is sometimes below 40 percent. In the Netherlands, Portugal and Turkey, it is more than twice as high, at more than 90 percent.

Retirement at age 67 is now a reality in the US and Japan.

According to the OECD, the age at which people actually end their working lives plays a key role in financing pensions. In Germany, they currently retire on average at just over 64, almost three years earlier than legally required for everyone born since 1964. Those who retire earlier generally receive a lower pension.

In some countries, people already have to work until the age of 67. Among them are the US and Japan, the world's first and fourth largest economies. From the OECD's perspective, it makes sense to link the retirement age to an increase in life expectancy and thus to extend it in many countries.

Higher pension contributions in France and Italy

The level of pension contributions varies significantly internationally. In France, according to OECD data, it is around 30 percent of income, while in Italy it is up to 33 percent. Germany, with 18.6 percent, is positioned much lower. Contributions are paid equally by the employee and the employer.

One aspect that is increasingly coming into focus is poverty in old age. In Germany, the risk is particularly high for those who earned little during their working lives and could barely put aside money for private pension savings. In Denmark, policymakers are trying to counter this with a basic pension financed by taxes.

East Germans most affected by poverty in old age

The differences between East and West Germany are a unique case in Germany. People who lived and worked in the communist GDR during the existence of the two Germanys until 1990 received significantly lower pensions for a long time compared to their working years. The gradual equalization with the West was not completed until 2025 - 35 years after reunification.

Therefore, poverty in old age potentially affects East Germans more often. Another reason: Because of the state-planned economy in the GDR, they were unable to invest in pension funds, for example. Unlike capitalism, there were no stock exchanges under communism./ DW