Key Takeaways
- • A commission appointed by German Chancellor Friedrich Merz proposed a Swedish-style capital-based pension fund funded by mandatory contributions from workers and employers, according to Reuters.
- • Merz said the new fund could channel at least 30 billion euros ($34.22 billion) a year into capital markets for economic investment.
- • The report proposes abolishing early retirement at 63 after 45 years of contributions and gradually raising the retirement age, to around 70 by the early 2090s, from about 67 by the early 2030s.
- • Labour Minister Baerbel Bas backed adopting the full package, while unions and parts of the Social Democrats' left wing objected, and business groups broadly welcomed the proposals.
- • The government aims to agree on the overhaul in the coming weeks, ahead of parliament's summer recess next month.
Summary
A commission appointed by German Chancellor Friedrich Merz has recommended a major overhaul of Germany's pension system, centred on a new fund modelled on Sweden's pension system, according to Reuters. The report, presented on Tuesday, June 23, 2026, calls for mandatory contributions by workers and employers to be invested in financial assets as a complement to the current pay-as-you-go system, in which retirees are paid directly from current contributions. The system has come under growing strain as the population ages and the ratio of workers to retirees declines.
Merz told a conference of the BDI industry federation that use of the capital market is perhaps the key factor in determining the long-term viability and stability of the pension system. He said the new fund could channel at least 30 billion euros a year into capital markets, and argued the change would keep contributions manageable and give younger workers confidence in future pension security. He called for a swift agreement with his Social Democrat coalition partners to adopt all of the commission's proposals.
The report also proposes abolishing the option to retire at 63 after 45 years of contributions and raising the retirement age incrementally in line with life expectancy, reaching around 70 by the early 2090s. Under current rules, the retirement age is set to reach about 67 by the early 2030s. Labour Minister Baerbel Bas, co-leader of the Social Democrats, backed implementing the full package despite opposition to parts of it from some on the left of her party.
Reaction has been mixed. Business groups, including the DIHK industry and trade association, broadly welcomed the proposals as "key steps towards a long-overdue reform." The BDA employers federation, however, warned that the capital funding proposal, which includes employer contributions, would raise the cost of hiring workers. Unions criticised the plan to abolish retirement at 63, arguing it penalises workers in physically demanding jobs.
The proposals arrive as Merz's coalition seeks to pass a package of tax and welfare reforms before parliament's summer recess next month. Merz trails the far-right AfD party in opinion polls and has faced pressure to revive Germany's stagnant economy, though he has struggled to overcome internal coalition disputes.
Merz told a conference of the BDI industry federation that use of the capital market is perhaps the key factor in determining the long-term viability and stability of the pension system. He said the new fund could channel at least 30 billion euros a year into capital markets, and argued the change would keep contributions manageable and give younger workers confidence in future pension security. He called for a swift agreement with his Social Democrat coalition partners to adopt all of the commission's proposals.
The report also proposes abolishing the option to retire at 63 after 45 years of contributions and raising the retirement age incrementally in line with life expectancy, reaching around 70 by the early 2090s. Under current rules, the retirement age is set to reach about 67 by the early 2030s. Labour Minister Baerbel Bas, co-leader of the Social Democrats, backed implementing the full package despite opposition to parts of it from some on the left of her party.
Reaction has been mixed. Business groups, including the DIHK industry and trade association, broadly welcomed the proposals as "key steps towards a long-overdue reform." The BDA employers federation, however, warned that the capital funding proposal, which includes employer contributions, would raise the cost of hiring workers. Unions criticised the plan to abolish retirement at 63, arguing it penalises workers in physically demanding jobs.
The proposals arrive as Merz's coalition seeks to pass a package of tax and welfare reforms before parliament's summer recess next month. Merz trails the far-right AfD party in opinion polls and has faced pressure to revive Germany's stagnant economy, though he has struggled to overcome internal coalition disputes.
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