German audit office warns pensions could consume 46% of federal tax revenues by 2040

Projected surge in tax allocation

Payments from the federal budget to the statutory pension insurance system are taking an increasing share of German public finances. In a report submitted to the Bundestag Budget Committee, the Federal Court of Audit reported that 36.7% of all federal tax revenues will be required for pension subsidies by 2040 under current statutory rules. The indicator, known as the tax revenue ratio, currently stands at approximately 29% to 30%. Without the pension package passed in late 2025, the ratio would have climbed more slowly to 32.7% by 2040. If proposed pension reforms are enacted without strict fiscal safeguards, the pension system could absorb nearly 46% of all federal tax revenues by 2040.

Budget commitments for 2026 and 2027

Federal transfers to statutory pensions currently consume nearly a quarter of all expenditure in the federal budget. The federal budget plan for 2026 allocates €127.4 billion to statutory pension insurance, while the draft federal budget for 2027 schedules €132.0 billion. The audit office warned lawmakers that current fiscal paths place disproportionate pressure on general taxation rather than shared contributions.

The audit office issued a direct evaluation of the trend in its submission to parliament.

The burden indicator indicates an excessively high burden on the federal government due to payments to the pension insurance.

Costs of the 2025 coalition measures

A substantial portion of the projected fiscal strain originates from the pension package approved by the coalition government at the end of 2025. That legislation generated €210 billion in additional federal expenditure through 2040. Suspending the demographic factor until 2031 to prevent pensions from decelerating accounts for €145 billion of the total. An additional €65 billion stems from the further expansion of the mothers' pension. To prevent social contribution rates from rising faster, lawmakers directed these costs into supplementary federal grants.

Debates over pension commission proposals

The German government is currently preparing a broader pension reform based on 33 recommendations presented by an advisory pension commission in late June. The commission proposed distributing future adjustments across pensioners, contribution payers, and the federal budget, but left federal fiscal commitments uncapped. A contentious item in negotiations is the proposed phaseout of early retirement without deductions after 45 contribution years, which currently costs contribution payers more than €10 billion annually. The commission also advised against permanently fixing the statutory pension level at 48% through federal funds alone, proposing a funded capital pension component instead. Auditors cautioned that if the introduction of the capital pension is delayed or delivers low investment yields, the federal budget will be forced to cover the gap.

The auditors advised lawmakers against weakening proposed reforms at the expense of public funds.

If some burdens are rolled back, attention must be paid to ensure that the federal budget is not drawn upon even more one-sidedly.