Germany's Pension Overhaul: 33 Proposals, a 4.24% Raise for 2026, and the Slow March to Age 70
23.06.2026 - 22:34:53 | boerse-global.de
German pensioners will see their payments climb 4.24% on July 1, 2026, lifting the value of each earnings point to €42.52. The increase is fully taxable for anyone whose income exceeds the basic allowance of €12,348 for single filers — a modest cushion in a year when the government is also unrolling a much broader reworking of the retirement system.
An expert commission has handed over a 33-point package designed to shore up long-term pension finances. The linchpin: starting in 2032, the retirement age would be tied to life expectancy. Under the proposal, the standard threshold would reach 70 by 2092. Even sooner, the regular retirement age hits 67 in 2031.
The commission recommends scrapping the “pension at 63” scheme, which allows long-insured workers to retire early without cuts. Mini-jobs would be brought into the statutory pension insurance system for the first time. A new capital pension element is also on the table: employers and employees would each contribute one percent of earnings into a funded pillar. Currently exempt groups — the self-employed, company executives, and parliamentarians — would be required to start paying in.
Severance taxation shifted in 2025
Since last year, the so-called “fifth rule” for spreading severance payments over five years for tax purposes is no longer automatically applied by employers. Workers must now claim the tax relief themselves in their annual income-tax return.
Experts warn that a large one-off severance payment may not be the smartest choice. The loss of company pension entitlements can be substantial. Multi-stage transition models — combining continued salary payments and non-compete compensation — often preserve pension contributions and leave the employee with more net income overall.
Court rulings sharpen deadlines and bonus terms
The DĂĽsseldorf Regional Labour Court ruled that professional athletes are only entitled to match-day bonuses if they actually play. A footballer had demanded payment for games in which he was listed in the squad but did not take the field. The court dismissed the claim (case number 11 SLa 106/26) and denied leave to appeal.
The Arnsberg Labour Court made clear earlier in 2026 how critical timing is in dismissal law. An employer’s summary dismissal was invalid because it missed the two-week investigation deadline. Moreover, no prior warning had been issued — a prerequisite for an extraordinary dismissal when the employment record is otherwise clean.
Partial sick leave edges closer
Germany’s Federal Ministry of Health is planning to introduce “partial incapacity for work” as of January 1, 2027. A draft bill from April 2026 envisions that employees who are ill for more than four weeks could return to work at 25, 50, or 75 percent of their usual hours. A doctor’s assessment and the employer’s consent would be required. Full wage continuation would apply for the first six weeks, followed by a reduced sickness benefit proportional to the resumed workload.
Payroll departments under mounting pressure
Companies are not only grappling with a shortage of skilled labour. New rules such as the EU Pay Transparency Directive are adding strain on payroll teams. A recent case illustrates the cost of mistakes: an external service provider overpaid roughly €5 million in salaries for federal civil servants posted abroad between July 2025 and June 2026, due to a calculation error.
On a brighter note, tax-free allowances for young people in basic social security rise in 2026. Pupils and trainees under 25 can earn up to the mini-job threshold of €603 per month without it counting against their benefits. Holiday jobs within that limit remain completely tax-free.
