The German ministers for labour and finance presented a reform package on Tuesday that aims to stabilize pensions and slow down the expected rise in contributions.
Labour Minister Hubertus Heil and Finance Minister Christian Lindner introduced their draft of a new law which aims to guarantee a pension level of at least 48% of an average wage.
The pension level indicates the percentage of the current average wage someone receives as a pension after working and contributing at the average wage for exactly 45 years.
If the pension level decreases, pensions will rise less than wages, which creates retirees who are relatively poor compared to workers.
To finance pensions without sharp contribution increases, Lindner said the government plans to invest billions in the capital market, with the proceeds being used to top up the pension pot from the mid-2030s.
This would give the pension insurance scheme a third source of funding in addition to the contributions and subsidies from the federal budget.
However, according to the draft bill, this will not be quite enough to prevent an increase in contributions.
Due to an ageing population, contributions are expected to rise from 18.6% to 22.3%, possibly reaching 22.7% by 2045 without capital market investments.
The plan is for the federal government to build up a capital stock of €200 billion ($217 billion) by the mid-2030s, primarily from loans and transferred assets. Then, €10 billion is to flow into the pension scheme each year from stock market returns.
Both Heil and Lindner hope the draft law will be approved by parliament before the summer break in July.
Lindner said, "This is not the only solution to the challenge of financing pensions in the long term." However, he added that it is a building block that will make a difference.
Heil and Lindner both emphasized that it was not about gambling and short-term speculation. Furthermore, the labour minister promised, "There will be no pension cuts and no further increase in the retirement age."
