Germany Plans to Implement Proposed Pension Reforms by the End of 2026

Quick Hits

• The German government’s Pensions Commission has presented thirty-three recommendations that the government intends to address and implement promptly.
• Mini-jobs would largely lose their special status under tax and social security law; special provisions for midi-jobs could also be eliminated.
• The standard retirement age for eligibility for old-age pensions would rise moderately after 2031, while incentives for early retirement are to be reduced.

Current Status: Reform Package, but No Law Yet

The commission’s recommendations are, for now, political proposals. Concrete implementation—such as through legislative procedures—is still pending. Nevertheless, the proposed key points are notable because they may affect typical human resources and compensation structures—and because the federal government has sent a clear signal that it intends to implement all proposals.

At the heart of a potential reform is the goal of placing the statutory pension system on a more stable long-term financial footing and broadening Germany’s overall retirement savings framework beyond the statutory pension. To that end, occupational and private retirement plans are expected to play a greater role in the future. Furthermore, the commission recommended introducing a statutory funded pension with individual capital accounts.

Mini-jobs: End of Special Status?

Of particular relevance to employers is the commission’s proposal to largely abolish mini-jobs. These marginal employment relationships are currently subject to a special tax and contribution regime. Only relatively low flat-rate contributions are payable into the statutory pension insurance system. Individuals in mini-jobs can apply to be exempted from mandatory pension insurance. In the future, marginal employment relationships would be included in the statutory pension insurance system with higher contributions, without this opt-out option. Furthermore, their special status under tax and social security law is to be abolished, meaning that higher social security contributions will also apply in this regard. Exceptions would be possible only for school students. As a result, the current transition range for so-called midi-jobs (employment relationships with gross monthly compensation above the marginal earnings threshold and currently not exceeding EUR 2,000 gross per month) could also be eliminated; in this category, employees currently pay reduced social security contributions.

Depending on the industry, employers may face significant effects on workforce planning. Particularly in sectors where many people work in mini-jobs—such as retail, hospitality and food service, or logistics—recruiting staff could become more difficult. This is because higher taxes and social security contributions are likely to make mini-jobs (possibly in addition to another job subject to social security contributions) less attractive to many people.

Retirement Age: No Immediate Increase in the Retirement Age, but a Gradual Rise

There are no plans to immediately increase the retirement age from the current age of sixty-seven. However, the commission recommended gradually linking this standard retirement age to rising life expectancy starting in 2031. Based on current projections, this could mean an increase of approximately six months per decade.

At the same time, the pension without deductions for individuals with particularly long contribution histories (“Pension at 63: (“Rente mit 63”)) would be abolished. The age limit for the earliest possible retirement for individuals with long contribution histories (with corresponding benefit reductions) would be raised from sixty-three to sixty-four years of age and later adjusted in parallel with the increase in the standard retirement age.

Employer-Sponsored Retirement Plans

There are also plans to strengthen employer-sponsored retirement plans. To this end, a social dialogue (Sozialpartnerdialog) is scheduled to take place later this year, which is intended to help increase the currently below-average coverage of occupational pension plans. This is to be achieved by reducing bureaucratic hurdles, improving the portability of pension entitlements between employers and systems, and enhancing legal certainty. For employers, this could also present an opportunity in the medium term to reposition occupational pension plans as a tool for retaining employees.

Takeaways

Pension reform has not yet been adopted, but the Pensions Commission’s proposals show that the issue is now gaining momentum. The planned changes regarding mini-jobs, the reform of the pension system, and occupational pension plans are especially noteworthy.

Ogletree Deakins’ Berlin and Munich offices will continue to monitor developments and will post updates on the Cross-Border, Employee Benefits and Executive Compensation, and Germany blogs as additional information becomes available.

Andre Appel is a partner in Ogletree Deakins’ Berlin office.

Lela Salman, a law clerk in Ogletree Deakins’ Berlin office, contributed to this article.

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