German Pension Reform May Require Self-Employed to Join State Scheme, Industry Group Raises Concerns

The German government is considering significant changes to its pension system, with proposals to extend mandatory pension contributions to self-employed individuals. This initiative, led by the current administration, aims to address gaps in retirement provision and reduce the risk of old-age poverty among self-employed workers. A government-appointed commission is currently developing strategies to implement these reforms.

Currently, salaried employees in Germany are automatically enrolled in the national pension scheme, ensuring a baseline of retirement security. In contrast, self-employed persons are not generally obligated to participate in the statutory pension insurance, except for certain professions. According to the German Pension Insurance Fund (Deutsche Rentenversicherung), around 3.5 million people were primarily self-employed in 2024, but only about 29 percent had mandatory pension coverage, leaving 71 percent without compulsory retirement protection.

This disparity has led to a higher incidence of old-age poverty among former self-employed individuals. Statistics indicate that more than 4 percent of retired self-employed people rely on state social security in old age, compared to approximately 2 percent of former employees. Authorities argue that extending mandatory pension participation to the self-employed could help close these gaps, provide essential risk coverage, and enhance financial stability for individuals in retirement.

Industry associations representing entrepreneurs and freelancers, such as the Association of Founders and Self-Employed in Germany (VGSD), acknowledge the importance of adequate retirement planning. However, they have voiced concerns about the design and implementation of the proposed reforms. The VGSD references studies suggesting that most self-employed individuals already make appropriate arrangements for their retirement. The association supports the principle of a mandatory retirement provision for future self-employed workers but emphasizes that the policy must be carefully structured to avoid unintended negative consequences.

Key considerations raised by industry representatives include the need for flexibility in how self-employed individuals fulfill their retirement obligations. The current proposals suggest a general requirement for retirement provision, not necessarily participation in the statutory pension scheme. This would allow self-employed persons the option to choose private pension products that meet basic requirements. Additionally, new business founders could be granted an initial exemption period of up to three years before being required to contribute to a retirement plan. The proposed rules would also apply to both solo entrepreneurs and those employing staff.

Previous efforts to introduce similar reforms have not advanced beyond the planning stage. Discussions among government ministries, employers, and unions in 2019 did not result in legislative action. The current reform commission, led by the Federal Ministry of Labour, is once again examining these options, but concerns remain about whether self-employed stakeholders are sufficiently represented in the process.

Industry groups warn that poorly designed regulations could impose financial burdens on self-employed individuals, potentially discouraging entrepreneurship and new business creation. Given that the German economy is already facing structural challenges, they argue that any new requirements must be carefully balanced to support both social security goals and economic dynamism.

The government continues to gather feedback from relevant organizations and is expected to release more detailed proposals in the coming months. The outcome of these reforms will have significant implications for self-employed professionals and the broader goal of ensuring a sustainable and inclusive pension system in Germany.