Merz vows to fully implement pension report proposing sweeping change

German Chancellor Friedrich Merz vowed to fully implement all reforms to the pension system officially presented by a special commission on Tuesday, as his government is seeking ways to stabilize funding undercut by a rapidly ageing population.

"All elements of this reform package must now be implemented swiftly," said Merz during the presentation of the report in Berlin.

"We cannot afford to remove or reject individual measures," he added.

Merz described the 33 proposals as "an overall strategy that only works as a whole." He said his coalition, which comprises the conservative CDU/CSU bloc and the centre-left Social Democrats (SPD), would implement the package "in full."

Labour Minister and SPD co-leader Bärbel Bas also signalled the proposals would all be applied, despite the report, which was leaked over the weekend, having sparked criticism, including from unions and employer representatives.

The plans envisage changes across all generations, as the commission aimed to ensure that retirees receive 70% of their last net salary in the long term, on a mix from state, occupational and private pensions, co-chair Frank-Jürgen Weise said.

The commission made up of 13 experts and politicians had been tasked to come up with proposals on how to reform the German pension system, as the number of pensioners is expected to rise significantly in the coming years with the post-war Baby Boomer generation having begun to retire.

Meanwhile, the number of workers paying into the system is not expected to rise at the same level, which could lead to significantly higher contributions.

Under the plans, the legal pensionable age, which is set to rise to 67 by 2031, should be increased by six months over the next decades in line with growing life expectancy.

The minimum pensionable age is also to be raised to 64, according to the commission.

To date, many people have made use of the option of taking a reduced pension at 63 after 35 years of contributions.

This point is separate from taking the state pension at 63 after 45 years of contributions without reduction, which the report recommends abolishing.

A proportion of the contributions should be invested in the stock exchange, with the commission proposing 2% of gross pay rising from an initial 0.5%, with half paid each by the employer and employee. The returns generated are intended to raise pension levels in the future.

Regardless of reform, contributions are expected to rise from 18.6% currently to 19.9% in 2028.

The commission further proposes that the self-employed should pay into the state pension fund where they are not insured by virtue of their profession. People currently self-employed will be allowed to opt out.

Politicians at the federal and state levels should in future make contributions to the state scheme. Civil servants will not be drawn into the state pension system, but the level of their pensions should be reduced. The civil service should also be cut back, in the commission's view.

SPD leader Bas acknowledged that the proposals, which need to be approved by parliament once they have been translated into law, might spark debate, but added that she was very confident that lawmakers could be brought on board.

The commission's co-chair Constanze Janda stressed that the proposals were not an indication "that the statutory pension scheme is on its last legs."

She said the stable system needed to be adapted to changing circumstances, referring to the demographic change experienced by Germany.

Merz described the plans to partially fund pensions with returns from investments as "genius."

The measure helps to reduce red tape and supports a "stabilization of contributions," he said.

At the same time, it makes available at least €30 billion ($34.2 billion) annually for the German economy, Merz said, which would lead to "a new momentum for growth and employment."

"We need to act quickly because the problems we face cannot be put off," he said, adding that a timetable would be hammered out at the next coalition meeting on July 1.

German unions have been among those criticizing the plans, with the German Trade Union Confederation (DGB) taking aim in particular at the proposal to scrap the option for people to retire early without their pension payments taking a hit.

Employer representatives have criticized the planned hike in contributions to invest in the stock markets, as this means a higher share that they have to pay.

Sarah Vollath, a pensions expert from the opposition The Left party, also criticized the concept, saying that relying on capital markets was "not a future-proof" move.