Financial services giant Allianz has criticised the incoming German’s government’s plans around pensions reforms.

The firm has said in a research note published on its website that the current plan ‘lacks key structural reforms, particularly in the areas of pensions, work incentives, and social security’. The proposed programme, Allianz Research said, ‘overpromises without solid budgetary backing’.

More specifically on pensions, Allianz Research wrote: “Germany's ageing population continues to put pressure on its social security system, with non-wage labour costs rising significantly.

Since Q1 2021, total labour costs have risen by +20 per cent, with non-wage labour costs up by a third, outpacing wage growth. With nearly 5m people expected to retire by 2029, further increases are likely. Despite this, the coalition plans to maintain the current pension level of 48 per cent until 2031, with a reassessment in 2029, and to continue to allow full retirement after 45 years of contributions.”

It went on: “New subsidies such as an "active pension" (tax-free income of up to €2,000 per month after retirement, with costs of €2.2bn annually) and the costly mothers' pension (€4bn per year) will further burden the system.”

Despite this, Allianz said that there were several constructive initiatives that stood out, listing the promotion of occupational pensions, a planned Riester reform, an increase in employee share ownership, and the proposed pension contributions for children between the ages of six and eighteen.

However, it warned: “While the latter is a promising step to encourage early saving habits, its long-term effectiveness will depend on strong incentives to continue contributions beyond the age of 18. Overall, costs continue to rise while structural solutions remain limited.”

This research note from Allianz follows the propositions put forwards by Friedrich Merz, who is widely presumed to be Germany’s next Chancellor. Merz, the leader of the CDU, is set to move into a coalition with the SDP. The two parties have worked together in recent weeks to establish a blueprint for how the proposed partnership will work.

As previously reported, the incoming administration has promised to secure and make the state pension more sustainable through increases in tax revenue.

The pension level, said the coalition in its Koalitionsvertrag 2025, will be secured at 48 per cent by 2031. The expense for this, Merz and his ilk said, will be compensated through tax funds.

The coalition wrote: “We compensate for the additional expenses that result from this with tax funds. We basically stick to the sustainability factor. Only a growth-oriented economic policy, a high employment rate, and adequate wage development make it possible to finance this permanently.”

The Merz-led coalition also returned to the idea of giving every child in Germany €10 a month, which will be invested in a third pillar pension scheme. The amounts from this will be exempt from taxation, with these payments being made until the child turns 18. Merz’s government also said that it will strengthen second-pillar pensions, especially in small- and medium-sized businesses.

There will also be added incentives for those choosing to remain in work after the retirement age, with the new government saying that it wishes to add ‘more flexibility’ in the transition from working to retiring.

---