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German pensions increase by 4.57%

A conjunction of Eastern and Western interests.

For the first time in years, inflation is not eating up the pension increase (symbolic image).
For the first time in years, inflation is not eating up the pension increase (symbolic image).

German pensions increase by 4.57%

Starting July 1st, pensions in Germany will see a considerable bump of 4.57%. This decision was made by the Bundesrat, and affects 21 million pensioners, who will see an increase, regardless of their location in East or West Germany. Someone with a 1000 Euro pension will see an additional 45.70 Euro added.

In the past autumn, it was projected that there would be a rise of around 3.5%. However, due to the stable labor market and good job contracts, a larger increase was determined. Specifically, wage hikes of 4.72% were the determining factor in the heightened pension adjustment.

A notable change is the absence of inflation impacting the hike. In May, Germany's inflation rate was 2.4% higher than the previous year. Unfortunately, between the past two years, the pension adjustments did not keep up with inflation, and the year prior only saw a morsel of growth in the east and zero growth in the west.

In 2023, pensions in the older regions went up by 4.39%, while the pensioners from the eastern regions saw a 5.86% increase. Interestingly, these regions had already aligned a year earlier due to the east's wages shooting up compared to the west.

It's been reported by the most recent pension insurance report; future pension increases will be significantly less. The report predicts an annual increase rate of 2.6% until 2037, amounting to a 43% total boost. Without any legal action, the retirement age would tumble for millions of 'baby boomers.'

The report also specifies that without reform, the pension level will decrease from the current 48.2% to 45.0% by 2037, meaning pensions won't grow as quickly as wages. The pension adjustment ordinance is expected to be published in the Federal Gazette once approved by the Bundesrat, and will commence on July 1st, 2024.

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The 4.57% pension increase in Germany is applicable to pensioners residing in both the east and west, demonstrating alignment in pension adjustments. Despite the past underperformance in keeping up with inflation, the higher pension adjustments in recent years have partially closed the gap between the two regions. The future pension adjustment rate, projected to be 2.6% annually until 2037, may hinder the pace at which pensions grow relative to wages, primarily affecting those from the West due to potential legal changes and the retirement age shift.

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