German chancellor Friedrich Merz warned young Germans to not solely rely on public pensions but also invest small amounts in the stock market, comment that received backlash from unions. IG Metall metal workers’ union call the chancellor view “out of touch with reality and dangerous”. They argue that, instead of promoting share-based private pension plans, he should strengthen the country’s pay-as-you-go retirement system.
The public pension system was founded by Otto von Bismarck back in 1889, but in 2036, where the projections estimated that 19.5mn German baby boomers will retire and only 12.5mn young worker will join the labor market, the system needs to be re-evaluated. According to the Cologne Institute for Economic Research (IW), in 2040, 100 workers will have to support 41 pensions.
Merz’s coalition is trying to nudge household towards an individual and privately managed retirement saving accounts as a complement to state pensions. This has led to a subsidy aim to children aged 6 to 18, where the parents can claim €10 to invest monthly in a share savings plan. The fund will be protected until the children have reached retirement age. Although it remains at a conceptual stage.
The German pension system has come to an alarm since a quarter of the federal budget – €117.9bn in 2024, where used to plug holes and the burden is predicted to rise even more. The new scheme aims to relive the burden of the Federal State and mitigate the state pension gap.
According to Ulrike Malmendier, professor at the University of Berkeley and the designer of the €10 subsidy said, “If you invest in a broadly diversified portfolio and take a 30-year perspective, then decent returns are all but guaranteed”. Yet, a recent survey revealed that 49 per cent of Germans prefer low risk investing and only 14 per cent prioritize high returns.
Based on that logic, the government is forecasting a 7 per cent average annual that would turn into €2,200 and with additional contributions to about €65,000 over the subsequent 50 years. But it still needs to consider inflation.
However, Malmendier, and proponents hope that real change will come from behavioral change, as children and parents consider ploughing more money into investments with higher returns. Nonetheless, it’s important to mention that previous attempts to incentives German into private pension have failed woefully.
Storbeck, O. (August 24, 2025). Germany’s pensions crisis: can €10 a month change how people invest? Financial Times. https://www.ft.com/content/f1cbac1a-c171-4978-8d46- 9a70cb98c975