German employer chief demands pension brake as 4.2% rise takes effect and contribution rate nears 20%

The cost surge

Germany's more than 21 million pensioners will see their benefits rise by more than 4.2% on 1 July, with a further increase of over 4.7% already forecast for 2027. The back-to-back jumps are driven by strong wage growth and by the coalition's first pension reform, which suspended the sustainability factor that would otherwise dampen increases when the number of retirees grows faster than the contributor base. Employer president Rainer Dulger told the Deutsche Presse-Agentur that this year's increase alone costs more than €18 billion.

It is impossible to justify to contributors that pensions are set to rise significantly faster than wages and prices this year and next, by more than 4% each time.

Dulger's demands

Dulger, president of the Confederation of German Employers' Associations (BDA), is pushing for a return to the sustainability factor and a long-term stable contribution rate. The current rate stands at 18.6% of insurable income; Dulger warned it must not be allowed to climb to 20%. He also called for the retirement age to rise further as life expectancy increases, and for an end to billions in spending on the pension-without-deductions for particularly long-term insured workers at a time when companies are struggling to find skilled labour.

Anyone who does not stop the spending dynamic in social insurance is aggravating Germany's economic problems.

The political arena

Chancellor Friedrich Merz was booed at a DGB trade union congress in mid-May when he reduced the planned pension reform to a question of basic arithmetic. Social Minister Bärbel Bas (SPD) had been laughed at on Employers' Day six months earlier while explaining that the pension guarantee was financed solely from tax revenue. In response, the coalition has now invited four employer and four union representatives to join the coalition committee talks this Wednesday, a step the CDU long resisted for fear the unions would water down the reforms.

We have to get out of this black-and-white thinking and do everything to hold the shop together.

Union pushback

DGB district chief Ernesto Harder warned that raising the retirement age to 70 would be a "hard blow" and a "harsh austerity programme" rather than a reform. He argued that life expectancy in Germany has not risen for 15 years and that many workers in DGB-affiliated sectors cannot physically work until 70. Instead, Harder proposed bringing more people into the pension system, such as politicians and entrepreneurs, though he rejected bringing civil servants in if it meant worsening their conditions.

That is not a reform, that would be a harsh austerity programme.

What comes next

The government-appointed pension commission, staffed with academics and coalition representatives, is expected to present its reform proposals on 28 June. The talks this Wednesday bring together the coalition committee with employers and unions, against a backdrop of almost daily announcements of job cuts and cancelled investments, most recently from pharmaceutical companies Boehringer Ingelheim and Eli Lilly.