Government advances legislation for maintaining consistent retirement benefits: Cabinet takes steps forward
The German federal cabinet has approved a draft for a pension law that aims to maintain a stable pension level until 2031 and improve pensions for millions of mothers. This reform, proposed by Social Minister Barbel Bas (SPD), is expected to be passed by the Bundestag by the end of the year [2].
- Stable Pension Level Until 2031
The reform aims to maintain the pension level at 48% of the average wage until 2031. This ensures that pensioners receive a stable income relative to the average earnings in the workforce [1][3]. Without this reform, pension levels were projected to decline to 47% by 2031 and further to 45% by 2040 [3].
- Better Pensions for Millions of Mothers
The reform includes an expansion of the "mother's pension" (Mütterrente), which increases pension benefits for parents who had children before 1992. This is designed to compensate for the time parents took off work to raise children, which typically resulted in lower social security contributions [1][3]. The increase is set to be approximately 20 euros per month per child, with the reform scheduled to be implemented on January 1, 2027 [1].
- Slight Increase in Pension Contributions from 2027
To cover the costs of maintaining the pension level and implementing the mother’s pension expansion, pension contributions will increase by 0.2 percentage points from 2027 [1]. Currently, both employees and employers contribute 9.3% of earnings (18.6% total), which will rise to 9.4% each (18.8% total) from 2027 [1].
These reforms are part of a broader effort to address the financial sustainability of Germany's pension system amidst demographic challenges such as an aging population and low birth rates [5]. The draft does not include a general retirement age of 70, as proposed by Economics Minister Katarina Reiche (CDU) [4].
The reform will standardize the child rearing credit from three years for children born after 1992 to three years for all children, affecting around ten million people, mainly women [1]. The financing of the better mother's pension will cost taxpayers around five billion euros annually from 2027 [6].
The pension expenditure including health insurance for pensioners will rise from 394.4 billion euros this year to 476.3 billion euros in 2029 [7]. The so-called "halt line" for the pension level will initially cost around 3.6 billion euros in 2029, rising to around 9.3 billion euros in 2030 and to around 11 billion euros in 2031 from the federal budget [7].
The draft includes the innovation that older people in retirement can continue to be active in their jobs [8]. The increase in the contribution rate may be required for one year due to the increase in the minimum reserve, but the federal government is not to pay for the replenishment of the reserve [9].
[1] German News Source 1 [2] German News Source 2 [3] German News Source 3 [4] German News Source 4 [5] German News Source 5 [6] German News Source 6 [7] German News Source 7 [8] German News Source 8 [9] German News Source 9
- The reform, aimed at enhancing pensions for millions of mothers, also includes an increase in pension contributions for employees and employers from 2027, as the government strives to financially sustain the pension system within the broader context of business and politics.
- The pension law draft, approved by the German federal cabinet, not only aims to maintain a stable pension level until 2031 but also seeks to address the general-news issue of demographic challenges, such as an aging population, by expanding the mother's pension and standardizing the child rearing credit for ten million individuals, mainly women.
