Gerontocracy in Germany? Pension shock 2025: Why top economists are now speaking of a "generational error".

###The German Pension Question Under the Microscope of Demographic Change ### 127 Billion Euro Tax Subsidy: The Inconvenient Truth Behind the New Pension Package ### Revolt in the Union: Will the Coalition Break Apart Over Intergenerational Fairness? ### Gerontocracy in Germany? How Politics Sacrifices the Interests of the Young ### End the Taboos: Will Working Until 70 Now Be the Next Step After the Pension Package? ###

A compromise at the expense of the future? The German pension system at a demographic tipping point.

It's November 28, 2025: After protracted negotiations, the leaders of the center-right/center-left coalition agree on a pension package that primarily buys one thing – time. But while politicians intend to freeze the pension level at 48 percent until 2031, the underlying figures tell a stark story. Germany is facing the biggest socio-political upheaval in its post-war history: The retirement of the baby boomer generation coincides with that of the smaller birth cohorts, massively destabilizing the social contract between generations.

The present article, "The German Pension Question Under the Microscope of Demographic Change," mercilessly dissects the discrepancy between political promises and economic reality. It illuminates how warnings from renowned economists and the Federal Court of Auditors go unheeded, while the federal budget increasingly groans under the burden of subsidies. From the rebellion of the "Young Group" within the CDU/CSU to the harsh criticism from employers' associations, one thing becomes clear: this is not just about percentage points, but about a fundamental distributional conflict between old and young.

Read on for an in-depth analysis of why experts speak of "systemic self-deception," what role "gerontocracy" plays in electoral decisions, and why the current decision may only be the calm before the storm of an inevitable, drastic reform. Is pension security guaranteed—or guaranteed unaffordability?

Suitable for:

• Coalition in a permanent compromise: When symbolic politics and party tactics become more important than economic reason, and their ideology weakens Germany's economic position.

When numbers lie and politicians remain silent: Anatomy of a systemic self-deception

The debate surrounding the pension package of the center-right/center-left coalition reveals a fundamental problem in German social policy that extends far beyond day-to-day political skirmishes. On November 28, 2025, after six hours of negotiations in the coalition committee, the coalition leaders agreed to adopt the controversial pension package unchanged, accompanied by a resolution calling for a fundamental pension reform in the coming year. However, this agreement does not mark the end of the controversy, but rather its postponement into an uncertain future. The central question of whether the criticism of the pension plan is based on pragmatic grounds or is ideologically motivated requires a nuanced examination of the economic facts, the political interests at stake, and the societal conflicts over distribution.

The German pension system faces its greatest challenge since the introduction of the dynamic pension system in 1957. The baby boomer generation is gradually reaching retirement age, while smaller cohorts are simultaneously entering the workforce. The statistical data paints an unambiguous picture: By 2036, the labor market will lose almost 19.5 million workers due to age, while only 12.5 million younger workers will enter the workforce. The German Economic Institute (IW) predicts that the ratio of contributors to pensioners will shift from the current 100:60 to 100:40 in 2036. Currently, 1.66 contributors are theoretically required to finance each pensioner; by 2036, this number will have dropped to just 1.33.

Budget crisis and expensive promises

The scale of the financial pressure is strikingly evident in the federal budget. In the next federal budget, one-third of all projected tax revenue will flow into the pension insurance system; specifically, €127.8 billion is earmarked for federal subsidies. This development significantly narrows the scope for future-oriented spending in the regular budget and postpones unresolved financing problems. The growth rate of the Ministry of Social Affairs, which is responsible for pensions, has accelerated from an average of 1.37 percent before the pandemic to 2.27 percent between 2024 and 2026.

The German government's specific pension package aims to stabilize the pension level at 48 percent until 2031. This so-called "safety net" guarantees that pensions will continue to rise in line with wage growth and that the sustainability factor will remain suspended. The sustainability factor was introduced in 2005 to mitigate pension adjustments when demographic changes lead to a growing number of pensioners and a shrinking pool of contributors. The package also includes an expansion of the mothers' pension, the so-called "active pension" with tax-free additional earnings of up to €2,000 per month for pensioners, and the planned early retirement pension.

Scientific alarm and the uprising of the young

Criticism of this package comes from various quarters and is based on different lines of argument. An objective analysis must distinguish between sound economic criticism and self-serving positions. Monika Schnitzer, chair of the German Council of Economic Experts, describes the package as costly and not conducive to growth. She argues that the planned additional expenditures are to be financed through taxes, which is not sustainable in the long term. The Federal Court of Auditors also warns of significant additional burdens for employees and higher labor costs for companies.

The core of the academic criticism focuses on intergenerational fairness. The renowned pension economist Axel Börsch-Supan described combining the sustainability factor and the safety net as extremely unwise, as this shifts the burden unilaterally onto younger generations. The German Pension Insurance estimates the costs of the extended safety net at approximately €117 billion between 2032 and 2040. An appeal by 22 prominent economists, including current and former members of the German Council of Economic Experts such as Veronika Grimm, Monika Schnitzer, and Martin Werding, as well as pension expert Bert Rürup, called on the German government to withdraw the pension package entirely.

Critics argue that the package would further exacerbate the demographic-related structural problems of the pension system and lead to an additional shift in the burden between generations. This would be to the detriment of younger generations, who are already under increasing financial pressure. The academics advocate waiting for the results of the planned pension commission before tackling fundamental reforms.

The Young Union and the 18 members of the Young Group within the CDU/CSU parliamentary group vehemently opposed the package. Their main criticism concerns the provision that even after 2031, the pension level should remain approximately one percentage point higher than under current law. This provision, they argued, would cause additional costs of up to 120 billion euros by 2040. The young MPs' rebellion temporarily jeopardized the coalition's narrow majority, as their 18 votes were sufficient to defeat the bill in the Bundestag.

Union demands versus employer warnings

In contrast, proponents argue that stabilizing the pension level is the only option. The trade unions, represented by the German Trade Union Confederation (DGB), argue that there is no alternative to stabilizing the pension level at a minimum of 48 percent. The DGB even calls for an increase to 50 percent. The social welfare organization VdK welcomes the stabilization and emphasizes that pensions will be more closely linked to wage growth, thereby limiting losses due to inflation and poverty in old age. However, the VdK criticizes the proposal to raise the minimum pension level to 53 percent, which is intended to guarantee a certain standard of living.

The scientific institutes IMK and WSI argue that younger generations also benefit from higher pension levels, as they themselves will later become pensioners. The researchers consider it problematic if pension payments to the elderly no longer keep pace with general economic development, especially since younger generations could still experience increasing purchasing power with normal real wage growth, even if pension contributions rose moderately.

The development of social security contributions is a central aspect of the debate. The current contribution rate is 18.6 percent of gross income. Forecasts indicate that the contribution rate will rise to between 19.8 and 20.0 percent by 2028 and to between 21.2 and 21.4 percent by 2040. The Federal Court of Auditors even predicts an increase to 22.7 percent by 2045. These increases will mean concrete additional burdens for employees and employers, impacting labor costs and thus the competitiveness of Germany as a business location.

Employers' associations have taken a clear stance against the pension reform package. Employers' Association President Rainer Dulger described it as the most expensive social legislation of this century and warned of a generational mistake costing billions. The BDA (Confederation of German Employers' Associations) criticizes the fact that the additional costs would amount to 200 billion euros over the next 15 years. BDA Managing Director Steffen Kampeter complained that policymakers are simultaneously pushing the accelerator and the brakes, as the reform aims to create incentives for working longer while also rewarding early retirement.

Our EU and Germany expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations

Ideological divides and the trauma of the Riester pension

The question of whether the criticism is pragmatically or ideologically motivated cannot be answered in a one-dimensional way. The economic facts undoubtedly support concerns regarding long-term financial viability. Demographic trends are irreversible, and funding gaps will widen dramatically in the coming decades. In this respect, the academic criticism is predominantly pragmatic, as it is based on verifiable figures and projections.

At the same time, ideological factors certainly play a role. The debate surrounding the pension system has always been characterized by fundamental distributional conflicts. The dispute between funded and pay-as-you-go systems dates back to Bismarck's social legislation. As early as 1952, the sociologist Gerhard Mackenroth formulated the thesis that all social expenditure must always be covered by the national income of the current period and that, from an economic perspective, there can only ever be a pay-as-you-go system. This thesis remains controversial to this day and serves as a basis for argumentation for various political camps.

Proponents of funded pension schemes argue that higher returns can be achieved through capital investments and risks can be diversified internationally. Critics, on the other hand, emphasize the high costs of funded schemes and point to the failed Riester pension as evidence of the risks of privatized retirement savings. The Riester pension, introduced under the Schröder government as part of the 2001 pension reforms, is now widely considered a failure. To date, over five million contracts have been terminated prematurely, and the number of terminations is expected to reach a record high in 2025.

Historical perspective reveals that German pension policy has been characterized by a fundamental paradigm shift. The pension reforms of 2001 to 2005, under the red-green coalition government of Chancellor Schröder, aimed to limit the increase in contribution rates by lowering the pension level and promoting funded supplementary pension schemes. The federal government at the time described this reform as the most significant and innovative since 1957. In reality, however, this strategy led to a reduction in the pension level from 53 to 48 percent within a decade, thereby weakening the acceptance and legitimacy of the statutory pension insurance system.

Suitable for:

• Pension Tsunami & Debt Wave: The Shocking Lesson – What Germany’s Stagnation Must Learn from Argentina’s Radical Cure

Gerontocracy: When Demography Determines Politics

The political-economic dimension of the pension debate deserves special attention. Public support for pension policy depends significantly on the demographic makeup of the population and the interests of voters. Economists assume that citizens are primarily guided by their personal interests when voting, with age being a decisive factor. In the 2025 federal election, the CDU/CSU achieved an impressive 43 percent of the vote among voters over 70, their best result in this age distribution. The SPD also benefited disproportionately from this age group.

The median voting age in Germany is currently 52, placing it squarely in the working-age phase approaching retirement, for whom comprehensive social security is assumed. Those over 60 made up more than 42 percent of eligible voters in the last federal election, more than three times as many as those under 30. According to a recent survey, 71 percent of Germans believe that pension policy places too much of a burden on the younger generation; even among those over 60, this figure is 62 percent.

This demographic situation leads to what critical observers call a gerontocracy. The philosopher Jörg Tremmel of the Foundation for Intergenerational Justice speaks of an obvious generational conflict and criticizes one-sided pension schemes that favor the elderly. Current pension policy could be interpreted as a gift to one's own voter base. On the other hand, it can be argued that a democratic majority decision is not illegitimate per se, and older voters have a legitimate interest in securing their standard of living in old age.

A gerontocracy (from ancient Greek gérōn “old man” and krateín “rules”) refers to a form of government in which political power lies predominantly or exclusively in the hands of older people.

While the term historically often described formal councils of elders, today it is mostly used critically to characterize political systems that are dominated by senior citizens due to demographic aging or entrenched power structures.

Reform options: From the Swedish model to the civil service question

A nuanced analysis must also consider alternative reform options. The German Council of Economic Experts proposes the introduction of a state-subsidized pension plan that combines high-yield fund investments with a simply structured standard product. Automatic inclusion of all employed persons is intended to increase participation rates. The Swedish pension system is frequently cited as a model, as it is based on a hybrid pay-as-you-go and funded system and includes all employed persons, including civil servants and the self-employed.

The Swedish model, however, also has its drawbacks. Pension benefits there depend primarily on wage growth and the employment situation, and there have already been several nominal pension cuts. The advantages of the Swedish premium pension are closely linked to the structure of the Swedish public pension system, particularly the mandatory participation of all employed persons and the transparent and cost-efficient administrative structure. A simple transfer to the German system is therefore not readily possible.

The inclusion of civil servants and the self-employed in the statutory pension insurance system is being demanded by various groups. This measure would lead to significantly higher revenues and enable a higher pension level in the long term. The VdK (Social Association of Germany) specifically demands that the super-rich should contribute appropriately to financing the welfare state through higher contribution assessment ceilings and fair taxation of large fortunes.

Economist Monika Schnitzer advocates abandoning the equivalence principle, the principle that pensions are directly proportional to contributions paid into the pension system. The IMK (Institute for Macroeconomics and Business Cycle Research) criticizes the equivalence principle, arguing that it de facto leads to a redistribution of wealth from the bottom to the top, since high-income groups have a structurally higher life expectancy and therefore receive higher payouts over their entire pension period.

The concept of generational capital as a new, capital-funded component within the statutory pension system is viewed critically by pension experts. The Federal Court of Auditors points out that this generational capital is to be financed almost exclusively through new federal debt and must generate high returns on the capital market to cover loan interest and ongoing costs. Only then will any relief for the pension insurance system be possible. The relief provided by this equity-based pension can be described as modest overall.

A fragile compromise and the upcoming reform debate

The latest agreement in the coalition committee stipulates that a pension commission is to submit proposals for a comprehensive reform by the end of the second quarter of 2026. This commission will also be tasked with examining the possibility of extending working life beyond the retirement age of 67, something that has been taboo for the SPD until now. Furthermore, a catch-up factor will be considered to offset the subsequent costs of the pension safety net. A ten billion euro equity package from the federal government is intended to support the development of private pension savings among the younger generation.

The question of the ideological content of the criticism must be assessed within the context of differing societal interests. Employers' associations traditionally pursue the goal of low non-wage labor costs and therefore advocate for stable contribution rates, even at the expense of pension levels. Trade unions, on the other hand, emphasize the importance of maintaining living standards and demand a strengthening of the statutory pension system. Both positions are, to some extent, ideologically driven, as they are based on the interests of their respective constituents.

The scientific critique requires a more nuanced assessment. Economists who call for a halt to the pension package primarily argue on the grounds of fiscal sustainability and intergenerational fairness. This critique is based on sound economic analyses and projections. However, it must also be considered that economic models rely on assumptions and that different assumptions can lead to different conclusions. The thesis that a declining pension level is necessary to stabilize contribution rates is itself a normative assumption that implies prioritizing contribution rate stability over benefit levels.

The controversy surrounding the German pension system ultimately reflects a fundamental societal conflict over resource distribution. The question of who bears the burden of demographic change is not merely a technical one, but a profoundly political one. The younger generation faces increasing contribution burdens coupled with uncertain pension prospects. The older generation has a legitimate interest in securing an adequate standard of living in old age after a lifetime of contributions. Both interests are legitimate, and the task of policymakers is to find a fair balance.

The current debate shows that this balance has not yet been achieved. The criticism from the young CDU/CSU members of parliament may appear rebellious, but it articulates a legitimate unease with a policy that distributes the burden asymmetrically. The economists' criticism may be dismissed as neoliberal, but it identifies real financing problems. The trade unions' position may appear self-serving, but it points to the importance of social security. A constructive pension policy would have to consider all these perspectives and combine them into a viable compromise.

Experience with the Riester pension scheme shows that well-intentioned reforms can fail if they underestimate the system's complexity or create perverse incentives. Shifting risk onto individuals has proven problematic, particularly for people with interrupted employment histories, low incomes, or a lack of financial literacy. A purely market-based solution to the pension problem therefore appears unrealistic.

At the same time, it is obvious that the existing pay-as-you-go pension system will reach its limits without adjustments. The combination of rising life expectancy, declining birth rates, and the retirement of the baby boomer generation is creating structural pressure that cannot be resolved by short-term measures, but merely postponed. A sustainable reform would have to strengthen the revenue side by including all employed persons and stabilize the expenditure side through moderate adjustments to demographic developments.

The planned pension commission offers an opportunity for a broad societal dialogue about the future of retirement security. The willingness to discuss even uncomfortable topics, such as extending working life, is a positive sign. Crucially, it will depend on whether political actors have the courage to think beyond election cycles and develop solutions that are fair not only to their own voter base but to all generations.

The conclusion of this analysis is therefore: Criticism of the pension package is motivated by both pragmatism and ideology, with the pragmatic elements predominating. The economic challenges are real and require fundamental reforms. The ideological differences reflect legitimate conflicts of interest that should be openly debated in a democratic society. However, postponing the necessary reforms to future generations would be neither pragmatic nor responsible. The German pension system needs a new intergenerational contract that fairly balances the interests of all stakeholders while also being fiscally sustainable. Time is of the essence, as the window for effective countermeasures closes with each passing year that the baby boomers approach retirement age.

☑️ Our business language is English or German

☑️ NEW: Correspondence in your national language!

Konrad Wolfenstein

I would be happy to serve you and my team as a personal advisor.

You can contact me by filling out the contact form or simply call me on +49 89 89 674 804 (Munich) . My email address is: wolfenstein ∂ xpert.digital

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitalization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

Benefit from Xpert.Digital's extensive, fivefold expertise in a comprehensive service package | R&D, XR, PR & Digital Visibility Optimization - Image: Xpert.Digital

Xpert.Digital has in-depth knowledge of various industries. This allows us to develop tailor-made strategies that are tailored precisely to the requirements and challenges of your specific market segment. By continually analyzing market trends and following industry developments, we can act with foresight and offer innovative solutions. Through the combination of experience and knowledge, we generate added value and give our customers a decisive competitive advantage.

More about it here:

• Use the 5x expertise of Xpert.Digital in one package - starting at just €500/month