Economist Warns of Cuts to Pensions and Care Benefits

Germany’s social insurance system is under increasing strain, prompting prominent economist Veronika Grimm, a member of the Council of Economic Experts, to call for reductions in certain benefits. She warns that rising costs in pensions, long-term care, and health insurance make it necessary to reassess what the system can sustainably provide. Grimm emphasizes the need for transparency, stating that promises that cannot be kept risk discouraging people from making private provisions, even when they could afford to do so.

One area of concern is the statutory pension’s “Haltelinie,” a legal safeguard that ensures pension levels do not fall below 48 percent of the average wage. While intended to protect retirees, Grimm argues that maintaining this threshold in the long term is not financially viable without significant increases in contributions or taxes. She suggests that those who can afford their own care services should bear these costs themselves, reducing the burden on the collective system. Current labor-related contributions stand at 42 percent and could reach 45 percent by the end of the legislative term, further intensifying the financial challenge.

Government Plans to Maintain Pension Levels Until 2031

The federal cabinet has recently passed legislation designed to stabilize pension levels until 2031. The law includes improvements for millions of parents, notably increasing the recognition of child-rearing periods for those whose children were born before 1992 from 30 to 36 months starting in 2027. These measures mean pensions will remain slightly higher than they would without the reform.

Although much of the funding for these changes will come from tax revenue, employees and employers will still see modest increases in pension contributions, rising from 18.6 percent to 18.8 percent in 2027. A commission is set to begin work in 2026 to develop proposals for a long-term, sustainable pension financing model. However, political consensus between the governing parties remains elusive.

Mothers’ Pension Can Be Reduced Under Certain Conditions

While child-rearing benefits in pensions, commonly referred to as the “Mütterrente,” provide significant financial relief to many, they are not guaranteed in full for everyone. Hundreds of thousands of women have seen reductions in these benefits due to a legal limit known as the contribution assessment ceiling. This ceiling restricts the combined pension entitlements from employment and child-rearing credits to a maximum annual value, beyond which any additional points are deducted.

For 2025, the ceiling is set at 1.9131 pension points per year, equivalent to an annual gross income of 96,600 euros. A full year of recognized child-rearing time grants 0.9996 pension points. If a mother earns more than one additional point through work during this period, the excess points from child-rearing credits are reduced. In practice, this means that even part-time work with above-average pay during a child’s early years can result in a lowered Mütterrente.

Legal Backing for the Reduction of Benefits

In 2020, the Federal Constitutional Court upheld the German Pension Insurance’s practice of reducing child-rearing credits when combined with employment points above the ceiling. Data from the German Pension Insurance indicates that in 2017 alone, child-rearing points were reduced in over 145,000 cases, affecting more than 143,000 women.

The Mütterrente is paid as part of the statutory pension and aims to recognize the economic value of raising children. Parents of children born from 1992 onwards can receive up to 36 months of child-rearing credits, while those with children born before 1992 currently receive 30 months, soon to be increased to match the later standard. The ongoing debate over these benefits remains central to broader pension reform discussions.