Economists warn that the pension without deductions will be weakened after 45 years

Economists are urgently warning against weakening the planned abolition of the pension without deductions after 45 years of contributions. In its opinion, the federal government would thereby jeopardize the entire pension reform. “With such a watering down, the pension package would effectively be dead,” says Marcel Fratzscher, President of the German Institute for Economic Research (DIW), ntv.de.

“The federal government would have to make up the missing money through savings elsewhere and would therefore inevitably question other elements of the package,” explains Fratzscher. Joachim Ragnitz, deputy head of the Ifo Dresden branch, also sees this danger, as he explains to ntv.de.

The abolition of the pension without deductions after 45 years of contributions, as proposed by the Pension Commission, "is intended to create the financial flexibility to enter into a funded pension scheme, i.e. to enable the additional pension insurance contribution of two percentage points," says Ragnitz. "If you give up on that now, this core part of the pension reform would become more difficult to implement, if not fail completely."

The Union and SPD parliamentary groups are currently discussing a compromise on the end of the tax-free pension. Among other things, an increase in the required years of contributions by up to two years is being discussed, reported the "Bild" newspaper, citing coalition circles. Employees could then retire without deductions after 46 or 47 years of contributions.

Although increasing the required years of contributions to 46 or 47 would significantly shrink the number of beneficiaries, it would still cost more than the alternative of just retiring early with deductions, Ragnitz makes clear. “The danger that the pension reform will fail as a result has not been averted.”

Schwesig scored points with her resistance

Both the SPD and the CDU/CSU have been criticizing the planned abolition of the tax-free pension for some time. All East German Prime Ministers have spoken out in favor of preserving them. This also applies to Manuela Schwesig, who performed significantly better in the state elections in Mecklenburg-Western Pomerania than the SPD in other elections. According to a survey by Ifratest dimap, more than three quarters of those eligible to vote there are of the opinion that the pension without deductions should be retained. 89 percent of SPD voters praised the fact that Schwesig “always openly opposes the federal government’s reforms.”

After the state elections in Mecklenburg-Western Pomerania and Berlin, Federal Finance Minister Lars Klingbeil indicated changes to the pension package. “We have to take the concern that despite a lifetime’s achievements and 45 years of work you won’t be able to retire in the end, we have to take that seriously and we will find solutions to that,” said Schwesig’s party colleague. However, DIW boss Fratzscher is convinced that weakening the plans would not change the perceived injustice.

“Any special regulations would inevitably appear arbitrary and would therefore be perceived as unfair,” says Fratzscher. "The public outcry and resistance are only likely to grow as a result of the attempt to water down the abolition of the tax-free pension. This would be seen as an admission that the federal government itself considers its original decision to be a mistake."

“Better to cushion hardship cases”

The federal government must show backbone and stick to its promise to only implement the pension reform as an overall package. “The much better alternative is to specifically cushion cases of hardship and improve the basic pension, as is already provided for in the pension package,” says Fratzscher. Ragnitz also advocates hardship rules for people who are no longer able to work. “The Austrian model could be used to define in advance which professional groups can retire early.”

According to the “Bild” report, such a limitation of the deduction-free pension to hard physical work is also being discussed in the coalition. The Pension Commission, on the other hand, has proposed a “protective pension for long-term contributors” “who are no longer able to work in their job shortly before retirement for health reasons”.

Today “pension at 64.5 years”

This “protective pension” should replace the previous pension without deductions. The fact that the latter is still sometimes referred to as “retirement at 63” is misleading. The “old-age pension for those who have been insured for a particularly long period of time” is currently achievable at 64.5 years. For those born in 1961, the limit is 64 years and six months. Anyone born in 1962 can start their pension at 64 years and eight months. The age of 65 applies to everyone born after 1964.

Anyone who has at least 45 years of eligible periods in the pension insurance is entitled to this. This includes not only compulsory contributions from employment, but also periods of raising children, non-profit care and military or community service.

Contrary to popular belief, abolition would not necessarily disadvantage predominantly hard workers. A DIW study came to the conclusion in 2024 that almost 70 percent of the West German men examined in the study with 45 years of insurance were not exposed to very high physical or psychosocial stress during their working lives. People who really need help - with interrupted employment histories, no training and who have raised children - have nothing of it, Fratzscher confirmed a few weeks ago. "And they pay for it." There are no official statistics on the exact professions or industries of all recipients, as the federal government admitted in June.

More than one in four new pensioners benefits

At the end of last year, according to the German Pension Insurance Association, there were almost 2.9 million current pensions of this type. That was around 15 percent of all current old-age pensions. In 2025, the authority recorded almost 262,400 new entrants, which corresponded to a good 28 percent of all new old-age pensions. The recipients are characterized by extremely long and continuous employment histories. On average, they had almost 46 years of compulsory contributions. Men take advantage of pensions more often: a good 55 percent of new retirees were male and almost 45 percent were female.

Relatively speaking, this type of pension is used more frequently in East Germany. In 2024, around a third of the new old-age pensions there were made up of this form of retirement benefits. In the old federal states it was almost 28 percent. In absolute terms, however, there were almost four times as many entrances in the West due to the different population sizes. The higher proportion in the East is explained by the traditionally earlier and often more continuous employment histories in the former GDR, especially for women.