Pensions have been a hot-button issue in Germany for years, and this week Chancellor Friedrich Merz rekindled the debate. He told an event hosted by the Association of German Banks in Berlin that “statutory pension insurance alone will, at best, still provide only basic coverage for old age. It will no longer be sufficient to secure one’s standard of living in the long term.”
Merz argued that workplace and private funded retirement savings must play a larger role: “And to a far greater extent than we currently have, which is largely based on voluntary participation.” That implies a future with greater emphasis on stocks and other investments — a controversial shift because market investments carry significant volatility and risk.
Labor Minister Bärbel Bas of the Social Democratic Party (SPD), junior partner in the coalition with Merz’s Christian Democratic Union (CDU), sharply criticized the comments. Bas said Merz had “given the impression that people should now secure themselves privately,” and that many interpreted his remarks to mean they might “no longer even receive a decent pension.”
Tensions between the CDU and SPD over pensions may intensify as a coalition-appointed pension commission prepares recommendations due by the end of June.
Demographic pressures and rising life expectancy are central to any long-term pension strategy. Low birth rates mean fewer workers contributing to the state pension system while the number of retirees rises. The OECD’s “Pensions at a Glance” review of 38 member states finds wide variation in policy approaches and cautions against simple comparisons.
Measured as net pension relative to total income after taxes and social security, Germany’s replacement rate is about 53%, below the OECD average of 61%. France and Italy report figures between roughly 70% and just under 80%. At the low end, Estonia, Lithuania, and Ireland can be below 40%; at the high end, the Netherlands, Portugal, and Turkey exceed 90%.
The actual age people stop working matters for pension sustainability. In Germany the average retirement age is just over 64 — nearly three years earlier than the statutory retirement age for those born in 1964 or later. Earlier retirement typically reduces pension amounts. Some countries, including the United States and Japan, already have effective retirement ages of 67. The OECD recommends linking retirement age to rising life expectancy in many cases.
Contribution levels to statutory pensions also vary widely. France’s is about 30% of income, Italy’s around 33%; Germany’s combined contribution rate is 18.6%, split equally between employee and employer. Lower contributions can strain future pension adequacy.
Old-age poverty is an increasing concern, especially for low earners who lacked opportunities to build private savings. Denmark, for example, addresses this with a tax-funded basic pension. In Germany, east–west disparities are notable: people who worked in the former GDR have long received lower pensions relative to their working years. The alignment with western pension levels was not completed until 2025 — 35 years after reunification — leaving eastern Germans at higher risk of poverty in old age. Under the GDR’s planned economy, opportunities to invest in pension funds or equities were absent, amplifying disparities.
This debate over how much the state pension should guarantee and how much should be shifted to funded private schemes is likely to shape political discussions as the pension commission issues its proposals.
This article was originally written in German.