Germany’s pension system will collapse without reform, according to an influential lobby group

Germany’s pension system will not be financially viable in five years without reform, according to Rainer Dülger, president of the Confederation of German Employers’ Associations.

The influential lobby group represents around 20 million employees in the German workforce. Carpenter said Germany Bild am Sonntag newspaper Sunday that the German economy is weakening and the social system is on the “brink of collapse”.

“Costs will go up,” he said, as translated by CNBC.

Contributions to Germany’s public pension plans were around 10.1% of the country’s GDP in 2019, but are expected to rise to 12.2% by 2070 under the current system, according to the 2021 Aging Report published by European Commission.

This 2 percentage point increase is one of the highest projected changes in the European Economic Area, ahead of only Ireland and Norway, where public pension contributions are expected to be 2.6 percentage points higher in 2070, and the Netherlands , where the percentage of GDP spent on pensions will increase by 2.2 points over five decades.

Labor shortages and an aging population are contributing to the challenges facing the German pension system. Dulger suggested that the retirement age should be tied to life expectancy, saying “it should not be the case that longer life expectancy leads to longer retirements.”

But Chancellor of Germany Olaf Scholz rejected calls to raise the general retirement age from 67 to 68 in June 2021 when he was finance minister.

“This is not only based on incorrect calculations, it is also socially unjust,” Scholz said at the time, according to Reuters.

Scholz also said there was “no real need” to raise the retirement age, despite a group of government economic advisers proposing to raise the threshold to 68 by 2024.

Dulger: Pensions are as serious as climate change

The scale of the reforms needed has not been seen since the German reunification period of the 1990s, according to Dülger, when East and West Germany were reunited after 45 years of separation after World War II.

The West German pension system was extended to East Germany, causing years of financial turmoil.

Dulger also said that the country’s pension system should be taken as seriously as climate change, and suggested that it be included in social policy projections to underline the urgency of the situation.

“Reforming the social security system is as complex as the energy transition, and undoubtedly just as important for intergenerational justice,” Dulger told Bild.