Coalition Outlines New Pension Reform Strategy to Win Over Young Lawmakers

The coalition government has introduced a comprehensive strategy aimed at securing support from younger members of parliament for its proposed pension reform package. Central to the plan is the formation of a pension commission, scheduled to be established within the current year. This commission will be tasked with developing reform proposals for the pension system by the end of the second quarter of 2026.

The commission will consist of 13 members, including two chairpersons appointed jointly by the Chancellor's Office and the Ministry of Social Affairs, three representatives from the coalition parties, and eight independent academic experts. One of the principal challenges facing the commission is the method for calculating the pension level after the current 48 percent safeguard expires. To address this, the commission will evaluate the introduction of a 'catch-up factor' designed to offset the long-term costs associated with maintaining the safeguard. This mechanism would likely result in pension increases being temporarily slowed until the pension level aligns with the trajectory it would have followed had the safeguard not been extended through 2031.

Chancellor Friedrich Merz emphasized that the government is determined to address the longstanding need for pension reform. He indicated that comprehensive legislative changes based on the commission's recommendations would be pursued in the latter half of 2026. The Chancellor underscored the significance of these reforms, highlighting the importance of resolving decades of policy backlog. Party leaders also stressed that the commission will operate without restrictions on topics or approaches, and that young lawmakers within the coalition will play a significant role in shaping its direction.

Despite these measures, the coalition does not plan to make additional amendments to the controversial bill concerning pension safeguards, in line with the preferences of the Social Democratic Party. Whether the proposed accompanying text to the pension package--intended as a formal parliamentary resolution--will be sufficient to alleviate concerns among dissenting members of the coalition remains uncertain. Discussions between senior government officials and representatives of the coalition's younger members are ongoing, with a final decision expected at the next regular parliamentary group meeting.

In addition to structural reforms, the coalition has decided to leverage federal equity assets to strengthen private retirement provisions. Specifically, returns from a EUR10 billion federal investment portfolio will be allocated to support the development of private pensions for younger generations. The Finance Ministry has been tasked with presenting detailed plans for this initiative by the next coalition committee meeting in December.

The accompanying document to the pension package outlines several further mandates for the commission. These include developing a new metric to assess overall retirement provision across all three pillars of the system, exploring more flexible retirement transitions, considering adjustments to the statutory retirement age, and reviewing early or delayed retirement incentives. The commission will also examine whether pensions should continue to be linked to wage growth or instead be tied to inflation, as well as explore enhancements to the sustainability factor designed to manage the contribution burden for younger contributors.

Other areas of analysis will include the potential integration of civil servants and self-employed individuals into the statutory pension insurance scheme and the possibility of extending contribution requirements beyond salary income. The commission is also charged with evaluating improved use of capital markets for private pension schemes, potentially via a standardized product modeled after successful international examples. The commission will further consider measures to ensure the long-term financial stability of the pension system.

Through these initiatives, the coalition aims to balance the interests of current and future retirees, address intergenerational concerns, and create a more sustainable and equitable pension system for Germany.