Report of the Pension Commission – Is a Pension Reform Imminent in Germany?

Germany could in the future raise the retirement age, restrict early retirement without reductions, and introduce an additional funded contribution. However, these are not yet new legal provisions, but rather recommendations by a commission for the period after 2031. The report examines which changes are being considered, why the pension system is in need of reform, and what the implications of this course could be for those in employment in Germany.

Pension reform in Germany after 2031 – what does the commission propose?

Longer employment, an additional contribution invested in the capital market, and fewer exceptions for early retirement – this could be the future of the German pension system. However, this does not yet constitute an agreed reform or binding legal framework.

The Commission for Old Age Security has presented a report with proposals for the period after 2031. The document outlines the possible directions of pension policy in Germany. Final decisions rest with the legislature; individual recommendations may be modified, postponed, or not implemented at all.

The report highlights the focus of the recommendations, which demographic groups could be affected by possible impacts, and why the commission has not confined itself to a simple increase in the retirement age.

The key proposals include:

• Linking the retirement age to average life expectancy,
• Abolition of early retirement without deductions after 45 contribution years,
• Raising the earliest possible retirement age from 63 to 64 years,
• Introduction of a mandatory funded pillar with a contribution amounting to 2 % of earnings,
• Inclusion of additional groups of employees in the social insurance system,
• Restriction of special rules for marginal part-time jobs (Minijobs),
• Improved protection for persons with low pensions,
• Further development of a digital information system on future entitlements.

What does the commission’s report actually mean?

The report currently changes neither the retirement age, the contributions nor the prerequisites for a pension entitlement. It is a collection of recommendations, serving as a basis for future political debates and, where applicable, legislative work.

The commission has analyzed not only statutory pensions, but the entire old-age security system. The document addresses, among other things, the benefit level, the structure of retirement age, the financing structure, protection against old-age poverty, the expansion of the insured population, the investment of part of the contributions, and modernization of administration.

This differentiation is crucial. A headline such as “Germany raises retirement age to 67.5 years” would currently be misleading. The commission merely recommends the creation of a mechanism that could lead to this outcome after 2031.

The authors of the report also emphasize that the proposals should be considered as a coherent policy package. Longer employment is to be combined with additional private provision, expansion of the insured group, and protection for persons with health limitations or low incomes.

There is no certainty that the calculations presented in the report will be accurate in the future. The commission points out that the modeled scenarios merely depict possible effects of reforms, but do not replace the more detailed calculations required in a legislative process.

Why does Germany’s pension system require reorientation?

The main problem is the growing number of pensioners relative to the number of working population. In the pay-as-you-go system, the ongoing contributions of workers finance the benefits of current retirees. If the relationship between these groups changes, this increases pressure on contributions, public finances, and pension levels.

According to data cited by the commission, there were recently 32 people aged at least 67 for every 100 persons aged 20 to 66 years. This figure is expected to rise to 38 by 2030 and 45 by 2040. This would mean that in the future there would be little more than two people of working age for each person of retirement age.

The financial consequences can be seen in forecasts. If the current system continues, the contribution rate for statutory pension insurance could rise from 18.6 % to 20.2 % in 2031, then to 21.1 % in 2040, and 21.4 % in 2050.

At the same time, the replacement rate could fall after the current threshold expires from 48 % to 46.4 % in 2040, and by 46.1 % in 2050. The further the projection horizon, the greater the uncertainty regarding these values, but the trend is clear: without changes, a greater need for financing can be expected while benefits are likely to be comparatively lower.

It is therefore not possible to guarantee low contribution rates, a high benefit level, and limited government subsidies simultaneously over the long term. The report proposes distributing the future burden among workers, employers, pensioners, taxpayers and hitherto non-insured groups.

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It should be noted that the report exclusively presents the recommendations of the commission and not applicable law. It is also open whether the proposed concepts will be implemented. Such reports are usually considered in the political process and can set the direction of future reforms, but recommendations rarely enter the legislative process unchanged. Therefore, developments should be monitored, but decisions concerning employment, contributions, or claiming early retirement should be based on current legal provisions, not recommendations.

Can the retirement age rise beyond 67?

Yes, the commission proposes raising the retirement age after 2031 in line with trends in average life expectancy. However, no fixed age limit is specified for all future cohorts.

The current schedule provides for a gradual increase of the regular retirement age to 67 years for those born from 1964 onwards. The report refers to the following phase, particularly for those born from 1965 onward.

The proposed mechanism is based on the 2:1 ratio. Each additional year of average life expectancy is to be divided as follows:

• eight months longer employment,
• four months longer pension period.

According to current forecasts, the retirement age could increase from 67 to approximately 67.5 years between 2031 and 2041. The commission, however, recommends announcing any changes several years in advance and regularly reviewing them based on actual life expectancy. The report also provides for exemptions for persons who, for health reasons, are unable to work longer. Following individual assessment, these persons could retire two years earlier without deductions or, in the case of an even earlier retirement, expect correspondingly reduced benefits.

What may happen to the pension after 45 contribution years?

The commission proposes to abolish the option of actuarially unreduced early retirement based exclusively on 45 insurance years. An earlier pension start would still be possible in principle, but would be accompanied by correspondingly reduced monthly benefits.

The current rule allows those with particularly long insurance records to retire before reaching the regular age limit. For persons born in 1964 or later, actuarially unreduced retirement after 45 contribution years is available from age 65 onwards.

According to the commission, this privilege disproportionately benefits persons with higher incomes, stable employment histories, and better health status. Persons who have experienced interruptions due to childcare, unemployment, illness, or later entry into employment may find it significantly more difficult to fulfil the required insurance periods.

According to the report, around 30% of those retiring since 2015 have taken advantage of the opportunity for actuarially unreduced early retirement; in 2025 the average newly approved pension for this group is 1,677 euros – about one third more than the amount for persons retiring early but with deductions. At the same time, the commission proposes to raise the earliest possible retirement age for those with long insurance records from 63 to 64 years and to gradually increase this threshold further in line with the regular retirement age. When planning retirement, in addition to contribution years, other relevant factors will include year of birth, type of pension, health status, and reductions for early retirement.

How may the amount of future pensions change?

The commission aims for the total income of an average pension beneficiary to reach at least 70% of their previous net income. However, this does not guarantee that, if the recommendations are implemented, the statutory pension alone will reach 70% of the last salary.

The target value is to take into account several sources of income:

• the statutory pension from the German Pension Insurance,
• occupational pension schemes,
• private provision programmes and retirement savings,
• the future statutory funded pension,
• selected social benefits.

For persons with lower incomes, the targeted replacement ratio should be higher, as a larger share of employment income is required for essential expenses. The report also highlights that the current 48% figure does not represent 48% of the last net earnings but instead refers to a model pension after 45 years of work at average earnings. Therefore, the commission recommends publishing a more transparent net replacement rate that incorporates different income groups, birth cohorts, and career breaks, in order to more accurately estimate actual retirement incomes.

What is the statutory funded pension?

The statutory funded pension is to become a mandatory part of the public system and financed through an additional contribution of 2% of employment income. Funds would not be used for ongoing benefits, but rather invested in an individual account assigned to the insured person.

The contribution is to be borne equally by employee and employer. At the full contribution rate, this would essentially represent 1% of employment income paid by the employee and 1% by the employer.

The commission proposes phased introduction – by 0.5 percentage points per year. The year 2028 was mentioned as a possible starting date, but this is only part of the recommendation and not a fixed entry into force of the regulation.

The funds are to be centrally managed and broadly invested in capital markets, similar to the Swedish model. The aim is to gradually increase future benefits; however, noticeable effects will only become apparent according to the report, after 10–15 years of saving. The commission further emphasizes that investing involves risks, and therefore proposes broad diversification of assets, a long investment horizon, and age-dependent portfolio management.

Who else could be included in the statutory insurance in the future?

The commission proposes to extend the pension system to all gainfully employed persons – not only employees, but also self-employed persons, civil servants, members of parliament, and board members. Such a model is intended to reduce differences between occupational groups and facilitate transitions between types of employment without changing the system.

The most concrete recommendation concerns self-employed persons. New occupations are to be mandatorily subject to pension insurance, while those already self-employed may continue to retain an opt-out option. Inclusion of this group could initially reduce the contribution rate by about 0.5 percentage points and raise the level of coverage by 0.5–0.6 percentage points; in the long term, this effect will diminish, since new contributors will acquire their own benefit entitlements.

What do the proposals mean for employees in mini-jobs?

The commission intends to abolish the option of exemption from compulsory pension insurance for mini-jobs and to restrict special tax and contribution rules for this type of employment. An exception could remain for pupils.

Currently, a person employed in a mini-job can in many cases apply for exemption from their own pension insurance contribution. In the short term, this leads to a slightly higher net income, but limits the advantages of complete insurance periods.

In the commission’s view, mini-jobs too often lose the character of secondary employment and become a longstanding employment model with limited social protection. The problem particularly affects persons who are only marginally employed over longer periods instead of transferring to fully contributory employment relationships.

The report therefore proposes the following:

• mandatory inclusion of marginal employment (Minijobs) in the statutory pension insurance,
• abolition of the option to waive the pension insurance contribution,
• limitation of the separate tax and contribution-related status,
• modification of the regulations for the transitional wage range, i.e., midijobs.

According to the commission, the current model may increase the risk of low old-age income, particularly if a Minijob represents the main source of livelihood for many years.

However, this does not mean that the regulations for Minijobs will be abolished immediately. Such a change would extend far beyond the pension system and would also have implications for taxes, health insurance, the labor market, and employer costs.

How does the commission intend to limit old-age poverty?

The commission emphasizes that a person who has paid contributions over several years should receive a higher income in old age than someone without a corresponding insurance biography. Currently, this is not always the case. Even 45 years of work at minimum wage may not be sufficient for the net statutory pension to exceed the basic security level; only the basic pension supplement improves the situation.

For this reason, the report proposes introducing an exemption amount for the offset of pension income against basic security, including for individuals without entitlement to the basic pension. The commission also seeks to reduce hidden old-age poverty by means of simplified procedures, improved counseling, and easier digital access to benefits.

How should non-contributory tasks be financed?

Benefits that fulfill tasks for society as a whole should be financed by taxes and not through contributions from employees and employers. The commission calls for a more precise separation of these types of expenditures.

The German statutory pension insurance not only pays out benefits that arise directly from the contributions paid. It also fulfills societal tasks assigned by the state. Part of the costs is covered by the federal budget; however, there is no universally accepted method for distinguishing these expenditures.

Depending on the underlying definition, the value of non-contributory benefits in 2023 amounted to approximately 68–124 billion euros. In the same period, federal subsidies to the system amounted to about 84 billion euros.

The commission proposes defining which expenditures remain the responsibility of the insured community and which serve societal purposes. The latter should, in future, be fully financed from the federal budget.

The report also recommends renaming the term federal subsidy to federal share – Bundesanteil. This is intended to clarify that it does not constitute voluntary assistance for the system, but rather the financing of tasks assigned by the state.

Should current pensions be reduced?

The report does not provide for a nominal reduction of pensions already being paid. However, individual recommendations may result in pensions rising at a slower rate in the future compared to maintaining the current level.

According to the commission, mechanisms should be reactivated after 2031 that adjust pension growth to demographic changes and to the number of contributors. One such mechanism is the sustainability factor.

The mechanism functions, in simplified terms, as follows: If the number of pension recipients rises faster than the number of contributors, the annual pension increase is lower. The commission proposes reinforcing this effect by raising the parameter alpha to 0.33.

According to the report, this strengthening of the factor alone could reduce the projected contribution rate by about 0.5 percentage points by 2040 and by almost one percentage point by 2060. However, this would also mean a stronger limitation of future pension increases.

The commission therefore proposes the parallel introduction of a transitional mechanism. Persons retiring after 2031 would initially receive a benefit at the current level of 48%. Over time, the funded pension would take on the role of supplementary provision. In practice, this does not concern a simple reduction, but rather a change in the way the benefit is structured and increased in the subsequent years.

How is digitalization intended to assist retirement provision planning?

The digital pension information is intended to provide, in one place, as complete a picture as possible of future old-age income. At present, the data on statutory, occupational, and private pension schemes are often scattered.

The commission recommends further developing the digital pension overview not only as an information system but also as a planning tool. The system should include more types of provision, including civil service pensions, professional pension schemes, and the proposed funded pension.

The user is to receive, among other things, the following information:

• Forecast of future benefits,
• Overview of various sources of retirement provision,
• Information on protection in the event of incapacity for work and death,
• Presentation of expected payouts in the coming years,
• Reference to a potential pension gap.

The report further recommends enabling the conduct of anonymous statistical analyses based on system data. Currently, evaluations are prepared for a specific individual and are not archived in a manner that allows for an accurate assessment of the situation of the overall population.

Improved information does not automatically lead to a higher pension. However, it can serve to identify at an early stage that the statutory benefit is insufficient to cover the planned expenditures. This results in more time to adjust employment scope, supplement missing insurance periods, or make additional savings.

What measures can already be taken?

The most effective measure consists in verifying one’s own insurance history and distinguishing applicable regulations from political recommendations. It is not necessary to wait for new legislation in order to organize data that influence future pension entitlements.

The following concrete steps are recommended:

• check the insurance record and ensure that periods of employment are not missing,
• verify periods of child-rearing, unemployment, illness, and care of family members,
• check whether one’s own contribution to the pension insurance is paid in the case of a mini-job,
• retain annual information on salary and contributions paid,
• record the data available in the Digital Pension Overview,
• separately estimate statutory, occupational, and private entitlements,
• do not assume that 45 years of employment always automatically guarantee an earlier pension without deductions.

In which direction could the German pension system develop?

The direction set out by the report encompasses a longer working life, broader mandatory contributions, and a stronger role for funded pension provision. At the same time, the commission envisages better protection for those who, due to health reasons or low income, are unable to work for long periods or acquire high entitlements.

It has not yet been decided which recommendations will be implemented. Increasing the retirement age, changes to mini-jobs or the introduction of an additional contribution require political decisions, consultations, and statutory regulations. The process may take many years.

Currently, the distinction between two levels is decisive:  applicable regulations as well as possible future reform directions. The relevant regulations in force at any given time must be examined before decisions are made regarding early retirement, waiver of contributions or changes in employment form.

The report does not introduce new rights or new obligations. It is, however, clear that the German pension system will likely in the future be based on a broader contributor base, a longer working life, and a combination of statutory and funded benefits. The sooner one’s own insurance history, pension projections and relevant tax documents are reviewed, the easier future decisions can be prepared.

FAQ

Does the report mean that new pension regulations apply in Germany?

No. The document contains recommendations of the commission for the period after 2031. It does not change the retirement age, the amount of contributions or the eligibility requirements. Any reform requires a specific law and a parliamentary resolution.

Has the retirement age already been raised to 67.5 years?

No. The commission merely proposes a mechanism that links the retirement age to further increases in life expectancy. According to current forecasts, the threshold could rise from 67 to around 67.5 years between 2031 and 2041.

Will the pension without deductions after 45 contribution years be abolished?

Not at present. The commission recommends abolishing this regulation, but the current rules remain in force. In the future, early retirement would continue to be possible, but with a corresponding reduction in benefits.

Will the earliest retirement age be raised from 63 to 64 years?

This is the direction of the report’s proposal. The threshold for those with long insurance histories is to rise to 64 years and subsequently continue to shift in accordance with the statutory retirement age. However, this does not yet constitute a binding change.

Will employees have to pay an additional contribution of 2%?

Currently not. The commission recommends introducing a mandatory funded pension, to be financed by a contribution amounting to 2% of earned income. Half would be borne by employees, the other half by employers. The year 2028 mentioned in the report constitutes a proposal, not a binding deadline.

Will self-employed persons be obliged to join the pension insurance scheme in the future?

The Commission recommends this regulation for new self-employed activities. Persons commencing self-employment after the established key date are to be subject to mandatory insurance, without the option of an unrestricted waiver. For existing self-employed activities, the report provides for more lenient regulations.

Can current pension benefits be reduced?

The Commission does not propose any nominal reduction of ongoing benefits. However, a slower increase in future pension payments is possible if the number of pension recipients rises more rapidly than the number of contributors. The report also provides for measures intended to stabilize the level of new pensions from 2031 onwards.

What measures are intended to protect persons with low pensions?

Contribution payments are also intended to provide a tangible advantage for recipients of basic income support. The Commission proposes an allowance when offsetting pensions against income as well as a simplification of access to support services for persons who are currently not claiming benefits to which they are entitled.

Is there already a need for action regarding existing retirement provision plans?

No need for action arises on the basis of the report alone. Decisions regarding early retirement, waiving contribution payments, or changing the type of employment should be based on the current legal situation. There is, however, already the possibility to review insurance records, supplement missing periods, and view a forecast of future benefits.