Why pensions are rising significantly again

Pensions rise noticeably in the summer – and for the first time in the East and West in the same way. In the future, pensioners will probably have to make do with small increases. The most important questions and answers.

Pensions in Germany are set to rise noticeably. The cabinet wants to decide on the adjustment for July 1st today. As was already announced in March, the more than 21 million pensioners in Germany will receive 4.57 percent higher salaries.

Is the increase unusually large?

At least it is stronger than predicted in the fall. At the time, estimates were based on an increase of around 3.5 percent in July. The main reasons for the significant increase are the stable labor market in Germany and good wage agreements. Wage increases of 4.72 percent were decisive for the pension adjustment.

Will inflation eat up the pension increase again?

No. Labor Minister Hubertus Heil had already pointed out that the pension adjustment was “significantly” above the inflation rate. Last year the pension increase lagged behind.

However, inflation continued to weaken in March. Consumer prices were still 2.2 percent higher than in the same month last year.

Will the increase be the same in East and West?

Yes, this is the case for the first time. In 2023, retirement benefits in the old federal states had increased by 4.39 percent and in the east by 5.86 percent.

This means that pensions had already equalized last year – earlier than planned because wages in the east had risen significantly more than in the west.

What are the prospects?

There are likely to be pension increases in the future – but according to the current pension insurance report to a lesser extent. The report assumes an average increase rate of 2.6 percent per year until 2037 – a total of a good 43 percent. Without legal intervention, the transition of millions of so-called baby boomers into retirement would become increasingly noticeable.

According to the report, the pension level is likely to fall from the current 48.2 percent to 45.0 percent in 2037 without reform. Pensions would then generally no longer rise as much as wages.

How does the coalition react?

With a legislative package that has already been presented and is due to go to the cabinet in the coming weeks. With their reform, Heil and Finance Minister Christian Lindner want to guarantee the pension level of 48 percent for the future.

The government also wants to invest at least 200 billion euros from federal funds in the capital market by the mid-2030s. The income is intended to dampen premium increases.

How are pension expenses developing?

According to the draft law, pension spending would rise from the current 372 to 755 billion euros by 2045 without reform. Due to the 48 percent pension level, it is likely to be 800 billion euros.

Without investing money on the capital market, the pension contribution would rise from 18.6 percent to 22.7 percent by 2045. With generation capital it should then be 22.3 percent.

(Source: dpa)