Increased distribution of retirement benefits for workforce members
The German government has approved a new law, the "Second Occupational Pension Strengthening Act," aimed at increasing the number of people with low and medium incomes who will secure their old age through occupational pensions. This follows Michaela Engelmeier, head of the German Social Association (SoVD), stating that the three-pillar model (statutory, occupational, and private provision) has failed and called for the statutory pension to secure the standard of living again.
The new law, set to come into effect on January 1, 2026, will bring several changes. Pension fund regulations will be "flexibilized" to allow for higher risks and yields. This is expected to boost returns for occupational pensions, making them more attractive for employers and employees alike.
One of the key focuses of the reform is addressing gaps in the spread of occupational pensions, particularly among smaller companies. To facilitate this, the law will facilitate "Opting-Out" systems for occupational pensions, which require one to object if a portion of remuneration is not used for pensions. Additionally, these smaller companies will be able to offer occupational pensions more easily in the future, for example as part of a works agreement.
Occupational pensions are considered an important pillar alongside the statutory pension. The existing social partner model, where employers' associations and trade unions can agree on occupational pension provision, will be further developed accordingly. The government views good occupational pensions as a contributor to quality of life in old age, being efficient, secure, and especially when organized collectively by the social partners.
The improvements to the statutory pension are also significant. The reform plans for a stable pension level until 2031 and better pensions for millions of mothers. These improvements will be funded with tax money.
Tax incentives for occupational pensions are to be increased, further encouraging their adoption. The law also aims to address the decrease in the spread of occupational pensions due to stronger employment growth. From 2027, the pension contribution is set to rise from the current 18.6% to 18.8%.
Online voting will be expanded in social elections. In a 2023 pilot project, over 330,000 members of five statutory health insurers cast their votes online. This digitalisation of the voting process is expected to increase participation and make elections more accessible.
In total, around 52 million people determine the social parliaments in Germany, including members of the administrative councils of statutory health insurers. This democratic involvement is a cornerstone of the German social system.
The government's pension reforms are a significant step towards securing the future for millions of Germans. By strengthening both the statutory and occupational pensions, the government aims to provide a secure and efficient retirement for all.
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