Germany's looming pension apocalypse

For two decades, politicians have stared this beast in the face and kicked the can down the road. Now the crisis is upon them and there are no solutions in sight.

Friedrich Merz facing the revolt of his own CDU youth wing at a speech on Saturday. He left the fight weaker than he’s ever been.

Germany is headed towards a pension apocalypse driven by demographic decline. In the coming years, our population of pensioners will balloon relative to the working population funding those pensioners. This is a disaster that has been in the making for decades, and there is no longer any solution to it.

The worst crises are the boring ones, which in their banality cede the stage to a rotating cast of insignificant passing hysterias. We have had many years of freakout about fake apocalypse scenarios. An entire generation of schoolchildren grew up terrified about the possibility first of a nuclear apocalypse and then of a carbon dioxide apocalypse. The fleeting hysteria of a virus apocalypse interrupted these fever dreams, after which our rulers told us horror stories about the geopolitical threat of Russia and the domestic threat of a feverishly imagined fascism. Throughout all of these individual hysterias, the real apocalypse has been the pensions.

As apocalypses go, this one is very simple: In 1960, six German workers supported every pensioner. After reunification in the early 1990s, that ratio fell to about three. Today, it is around two, and by 2050 it will stabilise at around 1.3. Things are not nearly as bad as they will be, and still today 25 cents of every Euro collected in taxes is spent to keep the pension system afloat. This is in addition to the mandatory annual contributions from 35 million workers, which in 2025 will total around 300 billion Euros. These numbers will get worse and worse, until the Federal Republic becomes a Pension Republic – a strange political form in which the state will finance the life of pensioners from the earnings of workers in an almost one-to-one ratio. In this world, state services, infrastructure projects, national defence and everything else will take a backseat to the terrible burden of pension funding, while most individual pensioners – despite the incalculable costs – will receive monthly allowances ranging from the extremely bleak to the very modest.

Some decades ago, we could’ve at least tried to do something. We could’ve put money into investment funds and accepted some risk with the promise of returns that would help us through the bulge of retiring baby boomers. We could’ve folded our overcompensated civil servants into the standard pension system and we could’ve used contribution and tax relief to ease increases to the retirement age. Instead, we poured billions into economically draining prestige projects like the nuclear phaseout and the energy transition. These insane policies have driven up energy costs and hamstrung our economy, and so we are burning the candle at both ends: As our population ages and ever more pensioners rely on ever fewer workers to fund their retirement, the state finds itself presiding over a stagnating economy and dwindling tax revenues. Our rulers did not only ignore the pension apocalypse and they did not merely content themselves with minor patches. They made everything vastly worse than it had to be.

The crisis has been in the post for years, and now it is here. You could see it coming from a long way off, for example with the decision to open our borders in 2015, which always had a fiscal subtext even if that was not the primary reason for Merkel’s idiocy. You could see it in the bizarre rhetoric of Chancellor Olaf Scholz two years ago, when he asserted that the energy transition would soon bear fruit in the form of another economic miracle. The fantasy of runaway growth would indeed take the sting out of the pension crisis, but of course it’s not going to happen; wind turbines and photovoltaic panels will not fuel a second postwar boom era in Europe. And you could see it most recently in the money hunger of Merz’s new government, which moved heaven and earth to defang our debt brake and clear the way for massive borrowing. That borrowing was of course officially unrelated to the pension problem, but it was certainly a preparatory move, because more debt will soon become the only way to kick the can down the road.

We arrive at this crisis with a totally paralysed government. Chancellor Friedrich Merz of the centre-right CDU and Vice-Chancellor Lars Klingbeil of the insanely left SPD have nothing in common except their desire for power. All that holds them together is the fascist hysteria and the firewall against Alternative für Deutschland, which deprive the parties of the German political cartel of all alternatives. This is an uncertain system with no real leader, and as it careens from crisis to crisis, the national debate has shifted in a sustained way and for the first time to the pension crisis.

The specific point of conflict almost doesn’t matter, so I’ll sketch it only in the roughest detail. Basically, the Bundestag is supposed to pass another bandaid pension reform package in the coming weeks. The Social Democrats want this package to keep pensions elevated through 2031 and beyond; Chancellor Merz as always has little choice but to follow the Social Democrats wherever they take him. The youth division of the CDU, however, have balked at the legislation, which they regard as an unfair imposition upon the younger, working-age population. In this they are not wrong: Giving the social Social Democrats what they want will cost hundreds of billions through the 2040s. The youth CDU command 18 seats in the Bundestag, which is greater than the twelve-vote coalition majority and therefore enough to sink the pension package outright. It is yet another coalition crisis, as likely if not more to break the government as all the other crises that have preceded it.

This is only a preview of the bitter, intergenerational struggle to come, which will split our politics and in the worst case scenario perhaps even contribute to the end of our political system. Nobody working today can have any confidence that the pension system will survive to his own retirement; present employees pay into the system while doubting that it will ever pay them back. Many projections for the future of the German pension scheme imagine that we’ll return to at least moderate economic growth and they further assume roughly constant labour force participation. Even under these optimistic assumptions, the future looks very bleak. If instead stagnation continues and millions of workers try to escape an increasingly rapacious Pension Republic via emigration, “bleak” won’t begin to describe our future.

I honestly don’t know what is going to happen; I don’t think anybody does. Historically, democracies have had extreme problems reducing spending of any kind, and German pensioners as a voting bloc will only grow in influence through around 2040. To that comes the fact that social democracy is a deep German tradition. The Federal Republic derives a great deal of its legitimacy from the social welfare system, which is now crumbling before our eyes. Serious reforms will prove unworkable, the equivalent of political suicide for anybody who tries them.