German pension commission proposes shift to Swedish-style fund

A German commission has proposed a Swedish-style pension fund and increased retirement age to stabilise the country's pension system, which is under strain due to an aging population.

A commission appointed by German Chancellor Friedrich Merz has proposed a Swedish-style pension fund and a gradual increase in the retirement age to help stabilise the country's pension ‌system as the population ages.

The commission's report, presented on Tuesday, will form the basis for a major overhaul of Germany's pension system which the government aims to agree in the coming weeks. It called for establishing a fund modelled on the Swedish pension system, with mandatory contributions by workers and employers that would be invested in ‌financial assets to pay future pensions. "The use of the capital market in the statutory pension scheme is perhaps the key factor in determining the ‌long-term viability and stability of our pension system," Merz told a conference of the German BDI industry federation.

Germany's current system, in which the pensions of retirees are paid directly from employees' contributions into the system, has faced increasing strains as the population ages and the proportion of workers to retirees shrinks. Merz said the change would ensure contributions remained manageable and that younger workers would be ⁠able to ​count on a secure pension in future. ⁠He called for a swift agreement with his centre-left Social Democrat coalition partners to adopt all of the commission's proposals.

Labour Minister Baerbel Bas, co-leader of the Social Democrats, backed Merz's call for the ⁠commission's report to be adopted in full, despite opposition to parts of the plan from some on the left of her own party and from unions which oppose the higher ​retirement age. "I want to make it clear here: I want to implement this package," she told a news conference.

In addition to the new ⁠fund, the report proposed abolishing the option of retiring early at 63, without deductions as well as gradual increases in the retirement age, according to life expectancy, rising to around 70 by the early ⁠2090s. ​Currently, the retirement age is set to reach 67 by the early 2030s. FUNDS FOR ECONOMIC INVESTMENT

The report came as Merz's struggling coalition pushes to agree a package of tax and welfare reforms before parliament breaks for its summer recess next month. As well as shoring up retirement income, Merz said the introduction ⁠of the new pension fund would make at least 30 billion euros ($34.22 billion) a year available for economic investment through capital markets.

There have been calls for ⁠years from various politicians, economists and lobbyists ⁠to shift the pension system from the current model funded directly by contributions to one that includes funding from capital markets as Germany's demographic change has accelerated. However, reform proposals have repeatedly been stymied by political differences and by tensions between ‌the interests of current pensioners and ‌those of younger workers still paying contributions into the system.

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