The German Bundestag has passed a significant pension reform package, marking a notable achievement for the governing coalition of CDU/CSU and SPD. The legislation was supported by 319 members of parliament, surpassing the required majority threshold. The reform introduces measures to stabilize pension levels, expand parental pension benefits, and encourage longer participation in the workforce through the introduction of an 'active pension.' Alongside the pension reforms, a new military service law aimed at strengthening the Bundeswehr was also adopted.

Pension System Overhaul

Central to the reform is the establishment of a fixed minimum pension level, securing payments at a minimum of 48 percent of the average salary until 2031. This measure is designed to provide stability for future retirees. The package also includes an increase in pension entitlements for parents, particularly benefitting those who raised children born before 1992. For this group, the period credited for child-rearing has been extended by six months, resulting in an average monthly pension increase of approximately 20 euros per child. Around ten million parents are expected to benefit from this change.

Another key change is the implementation of the 'active pension,' allowing retirees to earn up to 2,000 euros per month tax-free should they choose to continue working beyond retirement age. Additionally, occupational pension schemes will receive further support to encourage private retirement planning.

Financial Implications and Political Debate

The reforms are projected to impose a substantial financial burden on the federal budget. Estimates suggest that the stabilization of pension levels and the expansion of the parental pension will require nearly 185 billion euros from federal funds by 2039. The German pension insurance system will be reimbursed for these costs using tax revenues. The anticipated long-term impact on public finances has been a point of contention, particularly among younger members of the governing coalition, who have voiced concerns about fiscal sustainability beyond 2031.

Introduction of New Military Service

Alongside pension reforms, the Bundestag also approved a new framework for military service to address national security challenges. The new legislation prioritizes voluntary enlistment to expand the Bundeswehr's personnel, aiming to increase the number of active soldiers from 183,000 to between 255,000 and 270,000 by 2035. To further bolster military readiness, the plan also calls for the recruitment of 200,000 reservists. The changes come in response to heightened security concerns, notably following the onset of the conflict in Ukraine.

Initially, the new military service will remain voluntary, with incentives including a monthly payment of approximately 2,600 euros and additional benefits such as contributions toward a driving license. However, should voluntary enlistment prove insufficient, the law enables the parliament to introduce a selective draft based on national requirements. All 18-year-old men will be required to complete a questionnaire regarding their suitability and motivation, and those born from January 2008 onwards will be subject to mandatory physical examinations.

Legislative Process and Next Steps

The measures faced extensive debate within the coalition, particularly regarding the financial implications of the pension reforms and the structure of the new military service. The Bundesrat, Germany's federal council, must still approve the legislation for it to take effect as planned from January 2026.

The government emphasized the necessity of these reforms to ensure long-term social security and national defense capabilities. The military service law is expected to provide a flexible approach, allowing for voluntary participation while retaining the option to implement selective conscription if required. The reforms represent a significant shift in social and defense policy, reflecting Germany's adaptation to changing demographic and geopolitical conditions.