German Employers Face €40 Billion Annual Bill as Mandatory Pension Reform Targets 2028

Germany’s state pension commission has handed its final report to Chancellor Friedrich Merz and Labour Minister Andrea Bas, setting the stage for what leaders call a take-it-or-leave-it overhaul. At the heart of the package are a compulsory private capital pension and a higher retirement age — changes that employers warn will cost them more than €40 billion each year.

Workplace representatives and union leaders immediately pushed back. Armin Laschet’s successor as CDU chair? Not in this story, but employer president Rainer Dulger spelled out the arithmetic: an extra two-percentage-point contribution, split equally between companies and workers, plus the elimination of the “Rente mit 63” early-exit option and a phased rise in the retirement age to 67.5 by 2041. “This is a forced state scheme that ignores the reality of company budgets,” Dulger said.

How the capital pension works

Starting in 2028, all employees will be required to pay into a funded supplementary pension managed either by a sovereign wealth fund or the Bundesbank. The additional contribution amounts to two percentage points of gross wages, shared equally by employers and employees.

The Mannheim-based ZEW research institute calculated that a standard pensioner — one who worked 45 years — could receive an extra €770 per month after 45 contribution years; after 20 years the monthly bonus would be roughly €150. The package aims to stabilise the net replacement rate at 70 percent.

Economy-wise Monika Schnitzer, a member of the council of economic experts, praised the model. Critics point out that older workers entering the scheme near retirement will see little benefit because the accumulation phase is too short.

End of early retirement without cuts

The commission recommends tying the retirement age to life expectancy using a two-to-one ratio — meaning that for every two years life expectancy rises, the retirement age goes up by one year. By 2041 it would reach 67.5. The current “pension at 63” option for long-term contributors will be scrapped; those with a long insurance record may retire at 64 only with permanent deductions.

A sustainability factor in the pension formula is to be revived and tightened. The current floor guaranteeing a 48 percent pension level expires in 2031. For new entrants from 2032, a transition factor will apply.

More contributors, fewer mini-jobs

The commission also proposes expanding the contributor base. Self-employed workers, members of parliament and board members of stock corporations would have to pay into the state system. Civil servants remain exempt for now, though their pensions are to be adjusted.

Another recommendation: largely abolish mini?jobs — the low?wage, low?contribution positions common in Germany — except for school pupils. Without such changes, the commission warns, the general pension contribution rate could climb above 22 percent by 2031.

Backlash from unions, support from business associations

Criticism came from both sides of the usual debate. Verdi and IG Metall condemned the end of early retirement and the higher age threshold. IG Metall chairwoman Christiane Benner argued that the proposals ignore the real working conditions of many employees, especially those in physically demanding jobs. SPD politician Manuela Schwesig also voiced concern.

Support arrived from the Seniors’ Union, the Young Union and the Association of German Chambers of Industry and Commerce (DIHK). Chancellor Merz stated clearly that the reform will be enacted as a single package — no cherry-picking allowed. “It comes as a whole or not at all,” his office confirmed.

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