German government reaches pension compromise to end standoff

Germany's coalition government has committed to significant changes in the nation's pension framework, while preserving the pension levels previously agreed upon. The initiative aims to address dissent within Chancellor Friedrich Merz's conservative faction.

The draft plan, obtained by dpa on Friday, follows late-night negotiations on Thursday between senior conservative leaders and their junior partners, the centre-left Social Democrats (SPD). According to the proposal, a pensions commission will deliver comprehensive reform suggestions by mid-2026. This commission will explore extending working life beyond the current pension age of 67, a topic historically avoided by the SPD.

The measures are designed to satisfy the conservative youth wing, which had threatened to reject the pension reform bill in parliament. Under the coalition agreement established earlier this year, the standard pension level is set at 48% of average income until 2031. After that, a higher baseline was projected, potentially costing Germanys shrinking working-age population up to 15 billion annually, a prospect opposed by the young conservatives.

The SPD has opposed any amendments to the current bill, which the coalition is determined to pass this year. While immediate feedback from the youth wing was not available Friday morning, Chancellor Merz expressed confidence that the compromise would be approved. "I expect consensus," he stated.

SPD leader Lars Klingbeil minimized concerns about coalition disagreements, emphasizing that his party has consistently supported structural reforms. "There is no conflict within the coalition; we had already reached agreement on these issues during coalition talks," he said.

The compromise text accompanying the new pensions law emphasizes the so-called sustainability factor, which considers Germanys ageing population to prevent excessive expenditure. Contribution rates are expected to remain stable for the next decade. Additionally, the reforms place greater emphasis on private and employer-funded pensions alongside the state system. Using dividends from a 10 billion federal equity fund, the government plans to help younger generations build up private retirement savings.

Author: Sophia Brooks