Retirement is about the future in the new year. Federal Minister of Labor Hubertus Heil (SPD) wants to present a pension package II in the near future to secure the pension insurance. "The challenges that now lie ahead of us from 2025 are undeniably huge," said Heil in December.

Germany's employers are alarmed. "Pension is becoming a brake on our nation's economic future," warns Employer President Rainer Dulger. Dulger calls for a gradual increase in the retirement age. How dramatic is the situation - and what are the options?

The problem:

Heil explained in December to representatives of the pension insurance: "The baby boomers will gradually retire in 2025, the baby boomers, those born before 1964." So there are more and more recipients of references. The president of the pension insurance, Gundula Roßbach, says: "The birth rate in Germany is between 1.5 and 1.6 children per woman. In order to keep the number of people living in our country constant, a birth rate of around 2.1 would be needed ." So how can Heil achieve his goal of stabilizing the statutory pension as the main source of old-age security and thereby securing the level of pensions over the long term?

Concerns of employers:

Dulger warns: "More and more state funds have to flow into the pension funds. In addition, the contributions threaten to rise more and more." The more money companies and the state have to put into the social security funds, "the less there is for investments in the future". The employer president refers to the more than 100 billion euros a year that currently flow from the federal budget into the pension fund.

Current situation:

The pension fund is currently well stocked. "Despite multiple crises, the labor market in Germany is stable," says Roßbach. As a result, premium income increased by 5.5 percent from January to November. "That's very positive." The expenses were also lower than estimated a year ago. Corona has led to an increase in mortality - one reason for a slower increase in life expectancy. Instead of the originally feared deficit of 6.5 billion, according to Roßbach, the pension insurance posted a surplus of 2.1 billion euros at the end of the year. In July, pensions are expected to rise by around 3.5 percent in western Germany and by more than 4 percent in eastern Germany.

Forecasts for the coming years:

Roßbach refers to the official estimates: According to this, the contribution rate will remain at 18.6 percent until 2026 - and will increase to 20.2 percent by 2030. "At the end of the 1990s, the contribution rate was already higher than the one now forecast for 2030," says the pension president. At that time it was 20.3 percent. The pension level, which indicates the security power of pensions in relation to wages, is likely to remain above 48 percent until 2024. After that, a legal stop line is expected to take effect to stabilize the level. But by 2036, it would drop to 44.9 percent, according to estimates.

Reform demands:

Verdi boss Frank Werneke sees aging in Germany as "a development in society as a whole". He demands: "Therefore, additional financing from tax revenues needs to be strengthened." Employer President Dulger has very different demands. "We have to talk about the retirement age," he says. "We have a growing average life expectancy in this republic, and that's why we won't be able to avoid gradually raising the retirement age." Linking life expectancy and retirement age creates an "automatism that is definitely going in the right direction". However, the SPD, Greens and FDP had promised in the coalition agreement: "There will be no pension cuts and no increase in the statutory retirement age."

Labor market factor:

Pension President Roßbach counters gloomy scenarios: "There will be no bankruptcy and no collapse of the pension system, but there are lines of development that can be shaped." The employment potential on the job market is great - and in her opinion, should be further promoted. "The women, the elderly and especially the immigrants should be mentioned here in particular." Heil had already stated that the planned new law for more immigration of skilled workers should also contribute to more stable pensions.

Reform Options:

According to Roßbach, it is still politically open whether the contribution rate for the pension should be subject to certain limits in the future. "This will be used to measure how this is flanked with tax funds or other measures." From 2023, the government also wants to build up a new capital stock for pensions. With initially 10 billion euros, profits are to be achieved on the capital market ("stock pension"). According to statements from the pension insurance, however, such systems would need much more scope to bring real relief in the contributions.

Early retirement:

Dulger calls for an end to the early retirement pension without deductions after an insurance period of 45 years in its current form. "The chancellor himself has already recognized that the pension from 63 is not up to date, even though his party pushed it through at the time," says the employers' president. Before Christmas, SPD Chancellor Olaf Scholz had said that in future more people than before should actually work until the applicable retirement age. Roßbach explains that the utilization of early pensions with or without deductions was 60.4 percent in 2015 - 58.2 percent in 2021. "It fluctuates from time to time. You can't derive a wave of early retirement from that." Within 20 years, the proportion of employees aged 60 to 64 has even "increased significantly" - from 12 to 47.5 percent.