The German federal government responded to parliamentary questions in the Bundestag regarding the capital-funded pension model proposed by a pension commission. The cabinet considers that such a component could help curb the rise in contributions, though the specific method of its introduction remains under debate.
- The government does not view pay-as-you-go or capital funding as unconditionally superior; combining them could distribute risks more broadly.
- The specific implementation framework for capital-funded pensions has not yet been announced.
- Phasing out deduction-free early retirement after 45 years of contributions is a commission proposal, not an adopted legal change.
Government Position
In its response to an inquiry from the Green Party parliamentary group, the government stated that combining pay-as-you-go (Umlageverfahren) and capital-funded (Kapitaldeckung) financing mechanisms could distribute demographic and financial risks across the pension system more widely. At the same time, it refrained from declaring either method superior in all circumstances.
According to cabinet estimates, without a capital-funded component, contributions to statutory pension insurance would need to rise more substantially. The government cited ongoing consultations and did not specify how the capital-funded pension would be structured in practice. Specific contribution rates and timelines were not detailed in the announcement.
Proposals by the Pension Commission
As reported by Tagesschau, the commission proposed investing a small portion of employees’ pension contributions into equities. Among its recommendations is ending deduction-free early retirement for individuals with 45 years of insurance contributions. Currently, reaching 45 contribution years generally allows workers to retire before standard retirement age without pension reductions, with the exact qualifying age depending on birth year.
Commission member and economist Peter Bofinger argues that establishing a capital-funded pillar would initially require higher contributions and cost savings elsewhere in the pension system. The commission also suggested exceptions for employees physically unable to continue working. These points remain policy proposals and do not alter existing retirement rules.