A commentary by our author Klaus Bastian
Berlin plans to introduce a mandatory funded pension component within the statutory pension insurance system starting in 2028. To this end, employers and employees are to pay two additional percentage points in contributions on a phased basis. A public fund is intended to invest these contributions centrally, with limited investment options envisaged. While a funded approach makes sense, state administration creates a new problem. Unlike the pay-as-you-go system, which accumulates hardly any assets, this model would see the growth of a capital stock amounting to hundreds of billions of euros. Consequently, future political encroachment would not be a marginal risk, but rather the model’s critical weakness.
Private retirement provision would be simpler and more secure
The state would not need to set up its own mandatory fund. Instead, it could provide tax incentives for private retirement accounts and authorize low-cost ETF solutions. Low-income earners could also receive direct subsidies. The assets would remain personal property, be inheritable, and exist outside of special state-managed pools.
Image: AI-generated
In the pay-as-you-go system, contributions flow almost immediately to current pensioners. Consequently, the sustainability reserve serves merely as a short-term buffer; at the end of 2025, it stood at approximately €41.3 billion. A funded system, by contrast, requires a permanently growing pool of assets. It is precisely this difference in scale that makes political control so risky.
A funded pension scheme turns the state into the manager of a massive pension fund
The funded pension scheme is designed to siphon off two percent of income subject to pension contributions annually. Based on current figures, this would amount to roughly more than €30 billion per year. After ten years, gross inflows could already exceed €300 billion. With the addition of investment returns, the fund could eventually rank among Germany’s largest pools of capital. Compared to such sums, the current pension reserve looks like petty cash.
However, the track record of pension policy offers no grounds for confidence. For 2023, the statutory pension insurance system put the cost of non-contribution-funded benefits—based on an expanded definition—at €124.1 billion. This was offset by federal subsidies of only €84.3 billion, resulting in a calculated shortfall of €39.8 billion. This figure included €5.6 billion for periods covered by the Foreign Pensions Act (Fremdrentengesetz); no contributions had previously been paid to the German pension system for these periods. While such benefits may be politically desirable, the tax-funded budget must cover their full cost.
The Climate Fund Illustrates the Value of Government Promises
The Climate and Transformation Fund (KTF) was originally established as a vehicle for making payouts to citizens. The coalition government at the time promised social compensation for rising CO₂ prices, explicitly announcing a “climate dividend” for this purpose. Revenues from national CO₂ pricing and the European emissions trading system flow into the fund. Yet, the climate dividend never materialized. Instead, the KTF now finances building subsidies, hydrogen projects, industrial aid, and €6.5 billion in grid fee subsidies.
Furthermore, the federal government sought to shift 25 budget items from the regular core budget into the KTF. The Federal Court of Auditors criticized this move, citing a lack of “additionality” and the conflation of the fund with standard budgetary tasks. A similar pattern—involving vastly larger sums—could emerge with the proposed funded pension scheme. The state would not even need to openly confiscate the funds; a future parliamentary majority could simply mandate quotas for government bonds, politically driven investments, or supposedly one-off withdrawals. Laws offer protection only until the legislature changes them. Therefore, anyone advocating for a funded pension model should strengthen private ownership accounts rather than entrusting a massive pension fund to the state.
Author: Klaus Bastian – Blackout News
Sources: Welt (16.07.26) – Reuters (15.07.26) – Die Bundesregierung (Stand: 02.07.26) – BR24 (28.06.26) – Handelsblatt (25.06.26) – Ihre Vorsorge (25.06.26) – WirtschaftsWoche (22.06.26) – Table.Briefings (09.10.2025)