Merz Backs 2% Swedish-Style Pension Fund as Germany Seeks to Curb €118 Billion Gap
Updated
Updated · Financial Times · Jun 23
Merz Backs 2% Swedish-Style Pension Fund as Germany Seeks to Curb €118 Billion Gap
3 articles · Updated · Financial Times · Jun 23
Summary
A compulsory 2% payroll contribution would be centrally invested in capital markets under Merz’s proposed pension fund, a major shift for Germany’s traditionally risk-averse savers.
The plan is meant to shore up a pay-as-you-go system strained by demographics: 16.5 million baby boomers are due to retire by 2036, while only 12.5 million new workers are expected to enter the workforce.
Germany already paid €118 billion in 2024 to plug pension deficits—about a quarter of the federal budget—and economists warn that share could reach 50% within two decades.
The broader package includes linking the retirement age, now 67, to life expectancy, curbing early-retirement incentives and bringing civil servants and MPs into the statutory system.
Merz and Labour Minister Bärbel Bas said the coalition aims to pass the reform this year, though measures such as raising the full-pension age from 64 for long-term contributors are likely to face union resistance.
As Germany pushes retirement to 70, are workers being set up for a future of burnout or poverty?
Germany is betting on the stock market to save its pensions. What happens to retirees if the market crashes?
Germany’s Pension Overhaul 2026: Raising Retirement Age, New Capital Pillar, and 33 Key Reforms
Overview
Germany has completed a major private pension reform act in May 2026, aiming to simplify and modernize the pension system. Starting January 2027, a new private pension system will launch, allowing providers to offer products with or without guarantees on contributions. While guarantees offer downside protection, they usually come with higher costs and lower expected returns. The government’s pension commission plans to further improve accessibility and efficiency by recommending the removal of guarantees and expanding defined contribution plans to small and medium-sized enterprises. These changes are designed to make private pensions more flexible and attractive for a wider range of people.