So far, the Chancellor has promised major pension reforms by the end of the year. Now the most important part of the plans is coming to a standstill. What's going on behind the scenes.
The Chancellor only wants to define the capital market law parts of the pension reform in key points and not fully formulate them.
The capital pension is to be built up as a funded component within the statutory pension insurance, for which contributors should gradually pay two percentage points more from 2028.
The government is still examining who will manage the capital fund and which groups of people should benefit from the capital pension.
Studies show that without structural reforms, the total social security contribution rate will rise to 48.8 percent by 2035 and the capital pension would increase the contribution rate to 49.3 percent in the short term.
Berlin. Just four weeks ago, the Chancellor promised again to get the complete pension reform underway before the end of the year. “I am sure that we will have it through the cabinet by Christmas,” he announced at the Germany summit hosted by Handelsblatt and Wirtschaftswoche in Berlin.
But suddenly Friedrich Merz sounds completely different: Now he wants to pass the “major pension reform in its essential parts” before Christmas, but it will only be formulated in the pension law part. The capital market law part, on the other hand, should only be defined in key points, the Chancellor announced rather casually at the Berlin Chamber of Industry and Commerce at the beginning of the week.
This is intended to unravel the package that he agreed to in June with Labor Minister Bärbel Bas (SPD), who has since resigned. They promised to implement the pension commission's recommendations completely and without cherry-picking.
At the end of August 2026, at a closed meeting of the coalition factions, it was said that the complete package should be passed through the Bundestag by the end of 2026. But now the schedule is falling behind.
The outsourcing of capital pensions is at the heart of the reform: following the example of Sweden, a funded pension component is to be set up within the statutory pension insurance, which will enable significantly higher overall pensions in the medium term. In return, contributors should pay two percentage points more in the final expansion. “Ideally, starting gradually from 2028,” says the commission’s key points.
The Chancellor did not explain why the capital pension should be outsourced. What was previously unclear was who would manage the capital fund. The Commission had called the fund for financing nuclear waste disposal, “KENFO”, and the Bundesbank brought itself into play.
According to information from the Handelsblatt, these potential future administrators of the billions in pensions first have to answer a “catalog of requirements”. The government then wants to award the contract on this basis. In addition, it must be clarified who should be among the beneficiaries.
The commission recommended that Mannuss examine whether people with reduced earning capacity should also be integrated here. This also applies to social elements such as the basic pension, i.e. the supplement for people with particularly low pensions. If widows and widowers also benefit from the capital pension, this should at least not happen “at the expense of the collective of insured people,” the commission warned.
“Speed is important, but in such a generational project, thoroughness comes first,” said deputy SPD parliamentary group leader Dagmar Schmidt, defending the further delay. For the megaproject, an efficient capital fund would have to be set up, investment rules would have to be defined and suitable supervisory and governance structures would have to be created. In addition, the pension insurance procedures would have to be adapted “so that contributions, entitlements and subsequent benefits can be managed in a legally secure manner”. All of this must be done “reliably, transparently and in the interests of the insured”.
Criticism comes from the chairman of the “Young Group” of the Union faction, Pascal Reddig: “The capital pension needs a law, not a declaration of intent,” he told the Handelsblatt. Together with the other recommendations of the Pension Commission, it belongs “bindingly in a common legislative package”. Technical details could follow, but “basic decisions must not be postponed.”
For the additional contributions, the contributors would have to be relieved elsewhere. “That’s why the abolition of the so-called pension at 63 is part of the overall package,” says Reddig, i.e. the pension without deductions after 45 years of contributions.
Discussions are currently underway within the government and with the coalition factions. Merz and Bas as well as the coalition committee wanted to completely abolish the “pension at 63” after a transition period on the recommendation of the commission. The coalition agreement, on the other hand, guarantees “pension at 63”.
Above all, however, the SPD Prime Minister of Mecklenburg-Western Pomerania, Manuela Schwesig, has so far opposed the abolition, as have the Eastern Prime Ministers of the CDU. Merz, on the other hand, explained at the Handelsblatt Germany Summit: “In reality, the end of early retirement without deductions is a contribution to social justice.” “Retiring earlier, healthy and fit, without any deductions” is neither social nor can the pension insurance and our economy afford it.
Union faction leader Thorsten Frei recently hinted at a compromise. The required 45 years of contributions are “in case of doubt only 38 years of work,” he said on “Caren Miosga”. In fact, there may be even fewer, because up to now, periods of education, care and study as well as phases of marginal employment or unemployment are also recognized.
Especially because up to ten years are counted per child, constellations are even possible in which you can retire early without deductions even after only a total of 20 years of work subject to social security contributions.
According to new data from the German Economic Institute (IW), the trend of baby boomers towards early retirement continues unabated: in 2025, only 37 percent of new retirees went into regular retirement. A total of 1.1 million people received an old-age pension even though they had not yet reached the statutory retirement age. 27 percent stopped without discounts, 18 percent with discounts.
Since the additional earnings limit was abolished in 2023, more and more people have been taking advantage of the opportunity to earn unlimited additional income in addition to their pension, writes the IW. "It is now crucial not to let more workers leave early, which Germany urgently needs. Without the restrictions on early retirement, the recent economic crisis will continue in the next few years," warned IW labor market expert Stefanie Seele.
Without structural reforms, the total social security contribution rate will rise from today's 42.8 to 48.8 percent by 2035, according to a new study by the IGES Institute on behalf of the New Social Market Economy Initiative (INSM). If the coalition implements its plans in health and care and reforms the pension according to the commission's recommendations, but without a capital pension, the total contribution rate in 2035 will be 47.5 percent. That would be only 1.3 percentage points less than under current law.
If the capital pension is added, which gradually costs two more points of pension contribution over four years from 2028, the total contribution rate even reaches 49.3 percent. The IGES calculates that noticeable relief from the capital stock will probably only begin after 2035.
