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Legislation

German pension reform package accelerates increase in retirement age

The German coalition government approved a package of retirement reforms aimed at increasing the retirement age to 65 years and eight months from 62 years to take effect in 2019, according to the German federal government website.

The bill approved Wednesday also said the statutory pension level will remain at 48% of salary until 2025. The individual contribution rate to the state pension also will not exceed 20% by the same year. The retirement age is further planned to be gradually increased to 67, the update by the government said. Previous reforms set the retirement age to reach 65 in 2022, but the government intended to accelerate the process of raising the retirement age.

In efforts to relieve low-income earners from social security contributions paid to the government for future social benefits, the government also decided to increase the salary threshold from which contributions are payable, allowing low-income employees to pay a lower proportion of their salary into the social insurance system. An increase to a salary of €1,300 ($1,650) per month from €850, the German government said, ensures that "lower pension contributions do not lead to lower pension entitlements."

The package follows ongoing efforts to build a sustainable retirement system in Germany. The federal government set up a commission that is working on an overall concept for a "long-term and generation-friendly" pension provision. The commission is made up of representatives of the unions, employers, politicians and academics.

The commission has been given a mandate to prepare a proposal for sustainable safeguarding of retirement assets and the development of a new retirement model that is intended to be adopted starting in 2025.