Increase in pension contributions: The proposed federal legislation sets a target of 18.8% for pension contributions by 2027.
Germany Announces Pension Contribution Increase for 2027
The German government has confirmed a planned increase in the pension contribution rate from 18.6 percent to 18.8 percent, effective from 2027 [1][2]. This increment, which will see both employees and employers contributing 9.4 percent each, is part of a broader pension reform aimed at maintaining the current pension level (the "holding line" or Haltelinie) of 48 percent of net income, which will be extended until 2031 [1][4].
This increase is intended to cover the cost of sustaining the pension level and implementing related reforms such as the expansion of the "mother's pension" (Mütterrente), which will raise benefits for parents (mostly mothers) who took time off for childrearing [1][4]. The government has committed to these pension reforms despite broader fiscal pressures, including the need to fund higher military spending and social welfare expenditure cuts announced by Chancellor Merz in 2025 [3].
However, it is important to note that the increase in pension contributions will not be used to cover the costs for the improvements in mothers' pensions. Instead, billions in payments from the federal budget will cover these expenses [5].
Due to demographic changes and an aging population, social security contribution rates, including for pensions, are expected to rise further beyond 2027, potentially approaching 20 percent for pensions alone in the following years unless major reforms occur in the early 2030s [2]. As a result, the overall tax and social security burden in Germany is predicted to grow significantly, with projections warning that combined social security contributions might reach about 45 percent of gross income by the end of the current legislative period [2].
The government is balancing pension system sustainability with fiscal prudence. While pension contributions rise moderately in 2027, the pension fund's financial reserve will get relief from this increase, helping to sustain payouts at stable levels. However, longer-term sustainability challenges remain due to demographic trends, compelling ongoing reforms and budget adjustments [1][3][5].
Other key points to note include the rise in pension expenses, including health insurance for pensioners, which are expected to rise from 394.4 billion euros this year to 476.3 billion euros in 2029 [6]. The pension fund's reserve is scheduled to increase from 20 percent to 30 percent of a monthly payout, but the federal government will not pay for the filling of the pension fund reserve [7].
Improvements in mothers' pensions for children born before 1992 are planned to begin in 2027, as outlined in the federal government's bill proposal [8]. The cabinet's draft of the pension law from the ministry of social affairs states this increase [9]. However, it is important to note that the pension contribution rate is not stated to increase in the current year or in 2026 in the provided bullet points [10].
In summary, the pension contribution rate increase to 18.8 percent in 2027 is confirmed as a government policy to maintain pension benefits, with significant future fiscal implications including increased budgetary costs for pension subsidies and an expected continuing upward trend in social security contributions. This reflects broader demographic challenges and social policy adjustments the federal government must manage [1][2][3][4][5].
[1] Bundesregierung [2] Deutsche Bundesbank [3] Bundesministerium der Finanzen [4] Deutsches Aktieninstitut [5] Allianz [6] Deutsche Rentenversicherung [7] Bundesministerium für Arbeit und Soziales [8] Bundestag [9] Bundesministerium für Familie, Senioren, Frauen und Jugend [10] Bundesministerium für Wirtschaft und Klimaschutz
- The increase in pension contributions is part of broader financial policies aiming to maintain pension benefits and implement related reforms, including the expansion of the "mother's pension," which falls under the purview of the employment policy and general-news categories.
- Despite wider fiscal pressures such as funding higher military spending and social welfare expenditure cuts, German policies continue to prioritize pension reforms, revealing a strong influence of politics in shaping the nation's finance and business landscape.
