Germany's Pension Reform: A Balancing Act Amidst Aging Challenges

Germany plans to raise pensions by 185 billion euros over 15 years, allowing retirees to work tax-free. The increase is part of a coalition deal under Chancellor Friedrich Merz, with future reforms set for 2026. Economists warn of fiscal strain due to the aging population and declining workforce.

Germany is poised to implement significant changes to its pension system, aiming to infuse approximately 185 billion euros into pensions over the next 15 years. This decision, scheduled for approval by Germany's coalition government on Friday, seeks to allow pensioners to work beyond the retirement age without incurring tax penalties.

However, economists have raised concerns regarding the sustainability of the country's pension system, given the current demographic trends where fewer workers are supporting an increasing number of retirees. Chancellor Friedrich Merz's conservative administration, along with the Social Democrats, includes this reform in their coalition agreement. Yet, the proposal faced potential hurdles from younger conservative lawmakers threatening not to back it.

Key features of the 2025 pension package include maintaining the current pension levels relative to wages until 2031 and extending 'mother's pensions' to more parents. Germany's shrinking workforce highlights the need for these changes. Despite these measures, a comprehensive reform, based on expert advice, is anticipated in 2026.