Pension changes row threatens Germany’s coalition government

Original article by Kate Connolly in Berlin

A row over pension changes is threatening the future of the German coalition government, with a youth wing of the conservatives of the chancellor, Friedrich Merz, gaining support for an attempt to block legislation which they argue will leave younger Germans carrying the can for the older generation.

An 18-strong group of young MPs, the Junge Union, has been accused of holding Merz’s coalition government to ransom over its demands to revise proposed pension changes, which would guarantee pension increases for the next six years.

Among the rebels who are refusing to vote for the legislation is the 28-year-old grandson of the former German chancellor Helmut Kohl. Johannes Volkmann, an MP for Lahn-Dill in western Germany, argues that younger generations will be left carrying the burden for retirees and prospective retirees. Merz, who has a slim majority of just 12 in the 630-seat Bundestag, faces potential deadlock ahead of the vote due in December.

Volkmann, who has become a mouthpiece not just for the group but for a growing number of disgruntled conservative voters, has said Merz’s proposals to guarantee current pension levels would lead to additional costs of about €120bn (£105bn) until 2040, “which will have to be carried by my generation … this is simply fiscally unsustainable”.

Other “rebels”, including older MPs who say the plans need to be rethought, could bring the total number prepared to stand up to Merz to between 40 and 50.

Merz added grist to the mill as he addressed a Junge Union gathering – of which he was once a member – in southern Germany at the weekend, telling them he would “vote in favour of this pension package with a clear conscience”.

He said it was one of many adjustments that needed to be made to Germany’s burgeoning welfare state.

Germany’s problems are not specific to Europe’s largest economy, though are exacerbated by the country’s size and a population that is ageing even faster than most other places in Europe.

Now there are only about two workers supporting every pensioner, when just a few years ago it was three, and in the 1950s as many as six.

Correspondingly, compulsory pension contributions, split between employers and employees, have soared to almost 19% of salaries, and face going even higher under the current plans.

Retirees currently receive about 48% of their salary as a pension. While appearing generous by standards in other countries, pensioners’ lobby groups argue it is on the lower level of what they need, and anyway should reflect what they have paid into the system. However, it leaves the government with a massive hole to fill between pensions being paid out and contributions received.

Experts also say the working-age population is unnecessarily carrying the burden, particularly as the population ages. The young MPs argue that a reduction by just 1% to 47% of the average salary is required, a small price for the older generation to pay in order to lessen the burden on the young.

The concern expressed by the young MPs’ constituents is reflected in poll results, which show the lack of confidence Germans across all age groups have about their future pensions.

An increasing number of Germans either believe or recognise that they will have to work beyond retirement age, which is gradually rising to 67.

The German government is being called on to launch public information campaigns to encourage Germans to look for additional sources of income, such as stock market shares to fund private pensions. Currently only 60% of Germans have other sources of finance to fall back on when they retire.

Volkmann said he had spoken to Merz, with the chancellor apparently acknowledging that the demands of his group “make sense”. Though after his remarks at the weekend there is doubt over how much he will be prepared to concede.

Merz faces the challenge that if there is no shift on the pension issue, other widespread changes he has promised to oversee at a time when Germany is facing myriad challenges will stall, including a recent plan to incentivise retirees to continue working.