With his pension plans, Federal Labor Minister Hubertus Heil (SPD) is placing greater responsibility on employees in Germany. Pensioners benefit. But even economists close to the SPD are criticizing the plans. What changes will pensioners and employees face?

Pensioners can be happy. They are the winners of the reform presented by Federal Labor Minister Hubertus Heil (SPD), which the cabinet approved on Wednesday. Employees, on the other hand, are the ones who lose out.

The change is intended to set the pension level in Germany at 48 percent. The decision follows the end of the “double stop line”, according to which the pension level must not fall below 48 percent until 2025. In return, contributions to the statutory pension insurance were capped at 25 percent.

This cap is now off. What will apply from the year after next:

Pension level: The general pension level is set at 48 percent, which means it will remain at the current level. The 48 percent represents the share of the German average income that an employee who retires without deductions receives as a salary. The actual pension is lower if employees have earned less than the average income. Pensions are also partially taxable. Our pension calculator will tell you how much pension you are likely to receive:

Pension contributions: The federal government is willing to accept rising pension contributions in exchange for a fixed pension level. They are currently at 18.6 percent. Pension contributions have to rise because fewer and fewer workers are financing more and more pensioners. There are many ideas to mitigate the increase – higher deductions for early retirees, abolishing the pension at 63, raising the retirement age – but Hubertus Heil has repeatedly made it clear that he would not be willing to do this. Pension economist Bernd Raffelhüschen expects pension contributions to be up to 29 percent if the pension level is set permanently. Contributions that remain the same would tear a hole of three trillion euros in the pension insurance system, Raffelhüschen told FOCUS online.

Stock pension as a third pillar: A state-funded stock pension is intended to complement the statutory pension scheme from pension contributions and subsidies from tax money. The federal government is currently investing almost 130 billion euros in tax money in “non-insurance benefits”. The federal government will invest 200 billion euros in the so-called generation capital and pay the proceeds from this to the pension insurance scheme from the mid-2030s. The federal government wants to raise the start-up capital through debt.

Experts are critical of the reform. Above all, the fixing of the pension level places an excessive burden on employees. DIW boss Marcel Fratzscher, normally close to the SPD, told ntv.de: “In concrete terms, this means that there will be an even greater redistribution from young to old. In order to keep the pension level stable, employees’ contributions will have to rise, from 18.6 percent at the moment to 22.3 percent in 2035.”

Fratzscher also condemns the fact that the share pension is financed through debt, which may then flow into foreign company shares via the stock market: “I think that’s a bad idea. Not because it is fundamentally senseless, but because it sets the wrong priorities. The Federal Finance Minister and the Federal Government are taking on debt in order to invest the money in foreign companies. They do not want to take on debt in order to invest in education, training and good infrastructure in Germany.”

In addition, the generation capital of 200 billion euros “will not generate enough return to noticeably reduce the burden on the statutory pension.” It is about 10 billion euros in additional income per year. “That is a drop in the ocean. It will not be enough to better support the statutory pension.” Pensions currently cost Germany over 600 billion euros. Federal Labor Minister Heil expects the fixed pension level to cost 800 billion euros over the next 20 years. The next federal government will therefore probably have to take on the major reforms.