New reform: How will Germany protect pensions from demographic crisis?

Germany's coalition government, made up of Social Democrats, Greens and Liberals, has finally passed a long-awaited pension reform after months of debate. This reform aims to link pension income to wage growth and create a special investment fund to help finance pensions in the future. The adopted reform, which still needs to be approved by parliament, stipulates that the average pension level will be fixed at a minimum of 48 per cent in the future. This corresponds to the share of the average income in Germany that a worker currently receives in retirement without deductions. This measure is intended to ensure the stability of the pension system and protect pensioners' incomes from economic fluctuations. At the same time, a "capital for generations" - a special fund financed by loans - will be created.

At least 200 billion euros are planned to be invested in this fund over the next decade, which will be invested in the market to generate profits to support pensions. The profits generated from the mid-2030s are expected to be able to at least partially offset rising pension contributions. "It's important to create security for all generations because everyone should be able to count on their pension, and that's why it's important that pension levels remain stable," Labour Minister Hubertus Heil, a Social Democrat, told state broadcaster ZDF. He emphasised that if the government does not take measures to guarantee the level of pensions, the purchasing power of pensioners will be decoupled from the wages of working citizens, creating serious economic and social problems.

Germany at a crossroads: Government compromise and expert opinions

Liberal Finance Minister Christian Lindner, for his part, expressed his satisfaction with the decision reached after difficult and lengthy negotiations. Although his party would have preferred other options, such as lengthening the minimum contribution period or ending early retirement with at least 35 years of contributions, a compromise solution was found in the interests of all parties. With a looming demographic crisis, the question of how to ensure stable and sustainable funding for pensions is the subject of intense debate in Germany. The country faces serious challenges related to an ageing population and a decreasing number of working citizens who contribute to the pension system.

But experts were sceptical about the reform agreed by the government. Marcel Fratzscher, chief economist at the German Institute for Economic Research (DIW), which is considered pro-social democratic, told NTV that the measure would mean an even greater redistribution of funds from the young to the old. "To keep pensions stable, employee contributions will have to rise from 18.6 per cent today to 22.3 per cent in 2035," he said. Fratzscher also criticised the investment fund as a "bad idea", also because the expected return of around €10 billion a year is not enough to "significantly alleviate" the state pension system and is nothing more than "a drop in the ocean on a red-hot rock".

The adopted pension reform in Germany represents an important step towards protecting the pension system from demographic challenges. Such reforms show the government's willingness to seek solutions to protect the interests of pensioners and maintain financial stability in the long term.