Cabinet Approves New German Pension Package

The German pension package cleared its first hurdle today as the federal cabinet adopted a bill designed to keep old-age benefits at 48 percent of average wages until 2031. By anchoring that level in law, the German pension package aims to shield retirees from relative income loss even as demographic pressures mount. Labour Minister Bärbel Bas presented the plan during an extraordinary summer session, calling it “a commitment to inter-generational security” while acknowledging the billions it will cost the treasury.

Under the draft, overall pension outlays, including health-insurance contributions for retirees, will rise from €394.4 billion this year to an estimated €476.3 billion in 2029. Finance officials insist that federal transfers, not higher payroll deductions, will absorb most of the increase, though the contribution rate is still set to edge up. Supporters argue that predictable benefits bolster consumer demand; critics question whether future budgets can bear the load.

Contribution rate set to rise as reserve requirement grows

Government projections now show the payroll contribution climbing from 18.6 percent to 18.8 percent of gross salary in 2027—one-tenth of a point above what current law foresaw. The increase reflects accelerating retirements among baby boomers and the new obligation to build a thicker financial cushion. The cabinet wants the statutory pension fund’s minimum reserve raised from 20 to 30 percent of one month’s expenditures, giving administrators a larger buffer against economic shocks.

Fiscal planners emphasise that the federal budget will not refill that reserve. Instead, the temporary spike in the contribution rate is expected to finance the extra liquidity in a single year. Business groups warn that even a modest premium rise could weigh on labour costs, whereas trade-union leaders view the higher reserve as prudent insurance against downturns.

Mütterrente extension delivers targeted relief

A centrepiece of the German pension package is the long-debated expansion of the so-called Mütterrente. Parents—primarily mothers—of children born before 1992 will have three full years of child-rearing periods credited toward their pension instead of two-and-a-half. Beginning 1 January 2027, the change will add roughly €20 per month for each qualifying child, affecting about ten million people. Because the adjustment cannot be processed immediately, the pension agency will implement it in early 2028 and pay all arrears retroactively.

Supporters from across the coalition describe the measure as overdue recognition of unpaid care work. SPD minister Bas argues that it lifts many older women above the at-risk-of-poverty threshold. Opponents, including leading employer associations, counter that the benefit is unfunded and will burden taxpayers for decades.

Political and economic contest over long-term costs

Forecasts supplied to the cabinet estimate federal spending on the package at €9 billion in 2027, climbing to €14.5 billion by 2030 and nearly €20 billion by 2040. The German Council of Economic Experts cautions that these transfers could crowd out investment in climate and digital projects unless fresh revenue is secured. Employer-president Rainer Dulger labels the reform “the costliest social-policy act of the century,” while the Junge Union warns of a looming budget cliff once baby-boomer retirements peak in the early 2030s.

Yet unions and welfare groups see wider gains. The German Trade-Union Federation calls higher pensions “a boost for domestic demand,” and the VdK seniors’ association says stable benefits will ease pressure on health-care and long-term-care funds. Green Party deputy floor leader Andreas Audretsch argues that “protecting mothers from old-age poverty is basic fairness.” Left Party chair Ines Schwerdtner demands an even higher 53 percent benchmark, underscoring the spectrum of views the bill will face in parliament.

Wider cabinet agenda pairs labour reforms with ticket funding

The meeting that advanced the German pension package also produced decisions on labour standards, health care and transport. Public contracts worth more than €50,000 will soon require bidders to honour sectoral wage agreements, with an exemption for defence procurement until 2032. Authorities plan stricter audits of barbershops and cosmetics studios to curb undeclared work, obliging staff to carry photo identification on site, a rule already common on construction sites and in restaurants.

Health Minister Nina Warken unveiled a draft to let qualified nurses perform tasks currently reserved for physicians and to unify Germany’s 27 regional training pathways for care assistants. Under the proposal, all trainees would receive a standard allowance during an 18-month course, and graduates could assume more medical duties, an effort to ease staffing shortages.

Finally, the cabinet approved amendments to the Regionalisation Act to preserve the €58-per-month Deutschlandticket. Bund and Länder will each contribute €1.5 billion in 2026 to offset lower fare revenue at transport operators, safeguarding a pass used by about 14 million residents for unlimited regional rail and bus travel.