German government finds pension compromise to resolve showdown

Germany's coalition government has pledged to undertake far-reaching reforms of the country's pension system, while sticking to previously agreed pension levels, in a bid to resolve a rebellion within Chancellor Friedrich Merz's conservative ranks.

The measures are outlined in a draft document seen by dpa on Friday, following late-night talks on Thursday between leading conservatives and their junior partner, the centre-left Social Democrats, SPD.

Under the agreement, a pensions commission is to present proposals for a comprehensive reform by mid-2026.

The commission is to be tasked with examining an extension of working life beyond the pension age of 67, a measure previously seen as taboo for the SPD.

The document is intended to appease the youth wing of Merz's conservative bloc, which has threatened to vote down a bill on pension reform in parliament.

Under the coalition deal agreed when Merz's government took office earlier this year, the standard pension level is to be fixed at 48% of average income until 2031.

Beyond that, however, a higher baseline was foreseen, costing Germany's dwindling working-age population up to an additional EUR15 billion per year - something the conservative youth wing rejects.

The SPD had rejected any changes to the bill, which the coalition has been determined to pass this year.

Immediate reaction from the youth wing was unavailable on Friday morning, but Merz said he was confident that the compromise would be backed.

"I count on agreement," the chancellor stated.

SPD leader Lars Klingbeil played down any talk of disputes within the coalition, arguing that his party had always underlined the need for structural reforms.

"There is no antagonism in this coalition, we were already in agreement on this during the coalition negotiations," he stressed.

The compromise text, intended to accompany the new pensions law, focuses on the so-called sustainability factor - calculations that take Germany's ageing population into account so that expenditure does not spiral out of control.

Contribution rates are to remain stable for the next ten years.

A new focus is to be placed on private and employer-funded pension provisions, alongside the state pension.

Using dividends from a federal equity package worth EUR10 billion, the government aims to support younger generations in building up private provisions.