The Bundesrat, Germany’s upper house, has approved the government’s controversial pension package, a move drawing criticism from economists and opposition politicians alike. The bill, passed Friday, effectively freezes the current level of statutory pensions – presently at 48% of average earnings – beyond 2025 and expands existing provisions for parental benefits.
The core of the legislative push revolves around delaying the inevitable decoupling of pensions from wage growth. Without intervention, a formula stipulated for 2026 would have resulted in a demonstrable decline in pension levels and a resultant decrease in income for retirees. The government argues the extension, holding the line until 2031, prevents this erosion and safeguards the living standards of future pensioners. Critics, however, contend this is a politically motivated solution that merely postpones a more substantial and potentially painful, structural reform of the pension system.
Financing this extension places a significant burden on the federal budget. The increased costs to the pension insurance scheme will be offset by taxpayer funds, a strategy intended to avoid upward pressure on contribution rates. This reliance on federal subsidies sparks concerns about the long-term fiscal sustainability of the measure and deflects attention from necessary adjustments to the pension system as a whole.
Further complicating the package is the expansion of “mütterrente” benefits. Specifically, the law now stipulates that periods of childcare are recognized for pension calculations, granting all parents, regardless of the birth year of their children, three years of credit. For those who had children before 1992, this recognition increases by a further six months, bringing the total to three years. As with the broader pension freeze, this policy expansion relies on federal funding, exacerbating concerns around budgetary strain.
The legislation also includes provisions aimed at easing the return of older workers to their former employers. The amendment effectively lifts the ” Anschlussverbot” a legal restriction preventing re-employment by previous employers on a part-time or fixed-term basis, intending to facilitate re-entry into the workforce for retirees. This aspect faces scrutiny for potentially undermining labor market flexibility and raising questions about the true impact on overall employment.
Finally, the package incorporates the “Aktivrentengesetz” or Active Pension Law, enabling individuals to earn up to €2,000 per month tax-free after reaching the statutory retirement age of 67 while continuing to receive a pension. This component has been criticized as a flawed attempt to incentivize continued employment, potentially complicating the social safety net and failing to address the fundamental issues plaguing the aging workforce.
The overall consensus among many analysts is that this pension package offers a politically expedient, but fiscally questionable, band-aid solution to a systemic problem requiring more comprehensive reform.