Germany's proposed overhaul of its pension system is expected to reduce long-term pressure on younger workers, who are already grappling with sluggish economic growth and soaring housing costs.
However, analysts warn that achieving the same level of financial security enjoyed by previous generations will remain difficult, Caliber.Az reports, citing Reuters.
The reform proposals come as Europe's largest economy prepares for the retirement of its sizable baby-boomer generation, which in Germany includes those born between 1955 and 1969.
The urgency of the issue has grown as demographic trends accelerate. Germany's federal statistics office said on June 23 that by 2040, around 13.3 million economically active people will have reached or exceeded the statutory retirement age of 67, representing roughly 30% of last year's workforce.
Although ageing populations and housing affordability are challenges across Europe, Germany faces additional pressures due to its dependence on a pay-as-you-go public pension system, one of the continent's lowest homeownership rates and an export-driven economic model that is no longer providing the same level of employment stability.
To address these concerns, a government commission has recommended creating a pension fund modelled on Sweden's system. Under the proposal, mandatory contributions from employers and employees would be invested in financial markets to help finance future pensions as the ratio of workers to retirees continues to decline.
The commission also suggested gradually increasing the retirement age in line with life expectancy, which is projected to approach 70 by the 2090s, while eliminating the option of retiring at 63 without financial penalties.
According to Ifo managing director Joachim Ragnitz, the proposed reforms would gradually reduce the financial strain placed on younger generations.
"But during the transition period, before the full effect is reached, younger people will continue to bear a burden," he said.
Ragnitz added that the investment-based portion of the new system would cover only part of future retirement benefits.
"The pay-as-you-go system will therefore continue and will always place a burden on younger people if the birth rate remains below the replacement level of two children per woman," Ragnitz said.
The pension reform plans coincide with a major increase in government spending aimed at stimulating economic growth, although economists argue that many structural reforms required for sustained expansion have yet to be implemented.
Public opinion surveys also point to growing concern about the financial future of younger generations.
Research by the Pew Research Center found that 61% of Germans believed in 2024 that their children would be financially worse off than their parents, up from about half of respondents in 2018, when Germany's industrial slowdown began.
"The (pension) reforms will only very gradually shift the balance towards the younger generation," said Carsten Brzeski, global head of macro at ING, referring to people aged 45 and younger.
Germany's baby-boomer generation entered adulthood during decades marked by strong industrial growth, affordable housing, rising asset values and a pension system supported by a relatively large working-age population.
Many started their careers in the mid-1970s, when unemployment remained low and the country's export-oriented economy was expanding.
By Bakhtiyar Abbasov
