European Trade Union Institute, ETUI.

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7 September 2018

Germany: pension reform that stabilises the benefits agreed in the cabinet

The governing coalition partners have agreed on social policy measures that aim to stabilise pensions and increase residents' purchasing power. Labour Minister Hubertus Heil stated that the measures should bring stability and security by keeping pensions at 48 percent of a retiree's average working salary until 2025.

The coalition government finalised the preparation for a reform of the statutory pension scheme. The Labour ministry had presented the reform in July 2018 as ‘a core promise of the German welfare state’ which the government wanted to renew for the next decade. The so-called ‘Pensions Pact’, that comes into force on 1 January 2019, has four basic components. The first part of the agreement stabilises, at least until 2025, the level of statutory pension payments at 48% of the average net income and that of the contributions at 20% of gross income. As a consequence, the contribution of the government will increase as from 2021. Secondly, the coalition parties agreed to increase the pension benefits of families with children. Thirdly, low-paid workers are compensated for their low-pay by a reduced contribution level to the pension scheme. Fourthly, the disability pension benefits will be improved.   

On the eve of the final deliberations of the government, the finance minister had promoted a more far-reaching proposal to guarantee the 48% level until 2040. The employers reacted in a critical way to the proposal and said it is too expensive, whilst the trade unions were in favour of a guarantee of at least 50%.

We reported earlier about the Act on the Company Pension Reform that came into effect on 1 January 2018. The company pension act introduced a contribution plan with an eventual pension that can vary according to the return on investment. This contribution plan can only be implemented through a form of external pension fund, which is founded and managed by the trade unions and the employers' associations. The external fund bears the full responsibility for the company pension scheme.

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