German Chancellor Angela Merkel's coalition backed a €159 billion ($217 billion) pension package that boosts benefits for mothers and allows retirement at age 63 after a revolt in her Christian Democratic bloc faded.
Financed initially by the state pension fund, the increased commitments will cost about €10 billion a year through 2030, according to the legislation. Ms. Merkel's government says the benefits, which require upper-house approval, don't threaten its goal of balanced federal budgets as of next year.
The boost in benefits, which the government's independent council of economic advisers has called a “backward-looking” policy, reflects a deal between Ms. Merkel and the Social Democrats that helped bring together her third-term coalition last year.
“This pension package is extremely expensive,” Christian Schulz, an economist at Berenberg Bank in London, said by telephone Friday. It's “an expensive mistake for Germany” that fails to take account of an aging population, Mr. Schulz said.
Pushed through by Ms. Merkel and her Social Democrat coalition partner two days before European elections, the bill passed by a vote of 460-64 in the lower house, or Bundestag, in Berlin Friday. Sixty legislators abstained.
Lawmakers in Ms. Merkel's bloc criticized provisions allowing workers who have contributed to the state system for 45 years to retire at 63, saying a loophole that includes jobless years could trigger a wave of retirements at 61. Negotiators plugged that gap this week, while Ms. Merkel made good on her pledge in last year's election campaign to increase retirement benefits for women who had children before 1992.