Intergenerational contract

The Generationenvertrag (intergenerational contract) is the basis of the pay-as-you-go statutory pension insurance in Germany – introduced with the major pension reform of 1957.

The principle:

• Today's contributors finance the pensions of today's pensioners
• In return they expect the next generation to finance their pensions
• NO capital is saved up – contributions flow directly to pensioners

Current figures (2025):

• 39 million active contributors (more than ever!)
• 18.4 million old-age pensioners
• Ratio: 1.8 contributors per pensioner
• 1960s: 6 contributors per pensioner – three times as many!

The demographic problem:

• Birth rate: ~1.4 children per woman (2.1 needed to maintain the population)
• Baby boomers (1955–1969): are retiring NOW
• Double effect: fewer contributors + more pensioners
• Forecast for 2030: ratio of 1.5:1. 2050: 1.3:1

The levers available to politicians:

• Raise the contribution rate: currently 18.6%, probably 19.1%+ from 2028
• Raise the retirement age: currently 67, debate about 68–70
• Lower the pension level: currently 48% (stabilised until 2031)
• Immigration: more contributors
• Generational capital (share pension): a capital market reserve as a supplement