Currently, pensions in Germany are rising in line with wages. Experts are calling for inflation to be used as the basis for the calculation instead. That sounds good when inflation is at eleven percent, as it was just a few months ago. But in the long term, the figures say otherwise.

The idea: Experts such as economist boss Monika Schnitzer suggest that in the future pensions should no longer be linked to wage developments, but rather to inflation. Four facts explain what this idea means for your pension and why the proposal burdens pensioners and relieves contributors.

That’s what it’s about: In view of the required changes, pensioners could become fearful when looking at the inflation and wage history of the Federal Republic: Since 1949, wages in the old federal states have risen seven times as fast as prices.

Because public debates often mention these or similar figures, younger people in particular are worried about their pensions. If this increases in the future with prices instead of with wages, it will initially seem like a huge cut. It is not that simple.

Basically, if pensions rise in the future with inflation instead of with wages, they will most likely rise more slowly.

This is what is behind it: Because the German population is aging, the number of pensioners is increasing in relation to the number of people in employment. Two contributors currently generate the pension of one retiree. 40 years ago it was more than three, 60 years ago more than five. The burden per contributor has therefore increased significantly.

Slower pension increases are intended to keep the system affordable without overburdening contributors. “We cannot afford to simply let pensions continue to rise as before,” says economist Schnitzer.

The proposal is fair because a pension that increases with inflation retains its purchasing power. No matter how prices develop in the coming years, retirees know that they will always be able to afford the same amount as they currently do. Most other countries rely on such a system.

This is what it’s about: Looking at the inflation and wage history of the Federal Republic since 1949 distorts the expected effect for the future:

That’s what’s behind it: Since reunification, gross wages have only risen on average around 0.5 percent annually faster than inflation.

The development of recent years is much more likely to continue than that of the 1950s and 1960s.

Example calculation: If wages rise on average around 0.5 percent more than inflation, employees can calculate, based on their retirement, how much higher their salaries will be if they continue to be tied to wages instead of inflation:

If pensions rise with inflation, they also rise, but more slowly. This means: Anyone who receives a pension of 1,000 euros in ten years if pensions are linked to inflation would have received 1,051 euros if they were linked to wages.

That’s what it’s about: Because the pension formula takes into account a sustainability factor that does not allow pension contributions to rise too much, the pension level has fallen in recent years.

The federal government has therefore agreed on a double holding line: the pension level should not fall below 48 percent and the contribution level should not rise above 20 percent. The state currently only guarantees the 48 percent level until 2025.

The pension level is interesting for the pension amount: it compares the pension of an average earner after 45 years of contributions with his or her last income. If the average earner retires, his pension should be at least 48 percent of his last earnings.

That’s what’s behind it: With this rule, the federal government has so far largely linked pensions to wages. If average earnings rise, pensions must also rise.

The background to the idea is that retirees should benefit from the growing productivity that they laid the foundation for. They should be able to afford more than society as a whole, instead of just the same amount, as would be the case if pensions were linked to inflation.

This is what it means: As things stand today, prospective retirees can count on almost half of their last salary as a pension.

That is not much. Anyone who wants to maintain their standard of living in old age should take precautions – and will have to do so even more in the future, regardless of which system the federal government chooses in the future.

Since Germany will continue to age for the foreseeable future, critics like Schnitzer believe the 48 percent rule is untenable. Her proposal to let pensions rise with inflation would eliminate the stop line.

Without a stop line, the pension level is likely to continue to decline, according to the 2023 pension insurance report of the German Pension Insurance.

Important: A falling pension level does not reduce existing pensions. They then only rise more slowly compared to income.

That’s what it’s about: The pension level compares net values ​​before taxes. They differ significantly from the gross:

If pension contributions increase, the salary used in the formula for comparing pensions falls. This means that future pension increases will also be lower. Paradoxically, higher pension contributions reduce the increase in pensions.

However, changes in nursing care and health insurance balance each other out and do not change the pension level.