Increase in Workers Eligible for Retirement Benefits

German Government Approves Second Occupational Pensions Strengthening Act

The German government has taken a significant step towards securing the retirement of more employees, particularly those in smaller companies and those with low and medium incomes. On a recent date, they approved the "Second Occupational Pensions Strengthening Act," aiming to make occupational pensions more accessible and beneficial.

The law, set to come into effect on January 1, 2026, is designed to address gaps in the distribution of occupational pensions, a vital pillar alongside the statutory pension. By simplifying the process for small and medium-sized enterprises (SMEs) and employees with low incomes, the law hopes to encourage more employers to offer occupational pensions.

One of the key changes is the introduction of an automatic enrollment system for employees, allowing them to opt-out if they wish. This system is expected to increase the number of employees with active occupational pension entitlements. As of the end of 2023, the number stood at approximately 18.1 million.

To further facilitate this, the existing social partner model will be developed, and employers without collective agreements will now be able to provide pensions. Additionally, state subsidies and tax benefits for low earners will be increased, and exemption amounts for health insurance contributions on pension benefits will be raised.

The law also aims to increase the tax promotion of occupational pensions. According to the bill, the planned improvements are expected to cost the state around 155 million euros per year.

Regulations for pension funds are to be "flexibilized," as it is called, to make them more efficient and secure. Occupational pensions, when organized collectively by the social partners, are seen as particularly beneficial.

From 2027, the pension contribution is set to rise from the current 18.6% to 18.8%. However, the law also introduces "opt-out" systems, which allow one to object if a part of the income is not to be automatically used for occupational pensions.

The government views good occupational pensions as a means to ensure a good quality of life in old age. The distribution rate of occupational pensions fell slightly to 52% by the end of 2023, compared to around 500,000 more employees with active occupational pension entitlements compared to about 2017.

The new law is expected to make it easier for more employees to secure their retirement through occupational pensions, contributing to a more stable and secure future for all.