Government Advancement: Legislation for Secure Retirement Benefits Moves Forward in Cabinet
The German federal cabinet has approved a draft for a pension law, aiming to maintain a stable pension level until 2031 and improve pensions for millions of mothers. This landmark reform, expected to be passed by the end of the year by the Bundestag, will have far-reaching implications for the country's pension system.
At the heart of the reform is the commitment to maintain the current pension level at 48% of net income during working life, a promise fulfilled by the government from 2025 until 2031. This decision will result in slightly higher pensions than without the reform, with the "cap line" for the pension level costing around 3.6 billion euros in 2029, increasing to around 9.3 billion euros in 2030, and to around 11 billion euros in 2031.
One of the key features of the reform is the enhancement of support for parents. From 2027, parents of children born before 1992 will receive three years of child-rearing time credited to their pension instead of the current 2.5 years. This change, costing around €5 billion annually, will mainly benefit mothers who took time off to raise children.
The reform also includes an increase in the pension contribution rates. From 2027, the pension contribution is set to rise from the current 18.6% to 18.8%. This increase is due to more seniors retiring and gradually fewer young people paying in.
To encourage more employers to contribute voluntarily to company pensions, the reform increases tax incentives for occupational pension schemes. The tax-free maximum annual contribution limit is increased from €960 to €1,200. Subsidies for low-income employees will also increase, making it more attractive for employers to participate in company pension schemes.
The reform also introduces a new scheme that allows retirees to earn up to €2,000 per month tax-free, designed to encourage continued work and earnings after retirement. Additionally, the government plans to introduce an Early Start Pension where it contributes to private pension accounts for children, encouraging early pension savings.
However, there is disagreement between the Union and the SPD on the permanent financing of the pension system. Economics Minister Katherina Reiche has proposed raising the retirement age, but Social Minister Steffens has distanced herself from this proposal, stating that it would mean a pension reduction for many people who cannot work that long.
Social Minister Steffens has announced that further pension packages will follow, including strengthening the company pension, the active pension with incentives to work in retirement, and the "early start pension" with state assistance for old-age provision already in childhood.
The bill reveals that the direct impacts on the federal government's payments to the general pension insurance are excluded due to the increase in the minimum reserve. The reserves of the pension funds are to be increased from 20% to 30% of a monthly expenditure to provide more cushioning.
In summary, the reform aims to secure pension income stability, enhance support for parents, increase pension funding via contribution rates, strengthen occupational pensions with tax incentives, and introduce incentives for later retirement work and early savings for children. The reform is a significant step towards addressing the challenges faced by Germany's aging population and ensuring a secure retirement for all.
- The German pension reform, with its focus on maintaining the current pension level and improving pensions, especially for mothers, will have implications that extend beyond just the pension system, potentially affecting the broader landscape of finance, business, and politics, as well as general news.
- The German pension reform, by increasing contribution rates, enhancing support for parents, and encouraging later retirement work and early savings for children, is set to affect numerous businesses, particularly those offering occupational pension schemes, as it offers new tax incentives and changes the financial landscape of employee pension contributions and company policies.
