Social matters or issues - Retirement benefits increase by 4.57%
Starting July 1, 2024, pensions in Germany will receive a boost of 4.57%. The Bundesrat sealed this decision from the Federal Labor Ministry last Friday, and this increase will be evenly distributed to the estimated 21 million pensioners in both east and west Germany. Meaning, if a pensioner currently receives 1000 Euro, their payout will be increased by 45.70 Euro.
The projected pension increase was expected to only be around 3.5% in the fall by official forecasters. However, Germany's steady labor market and beneficial wage agreements have brought about a more substantial increase for pensioners. The wage hikes of 4.72% were particularly instrumental in the higher adjustment. And great news - inflation played no part in eating away at the increase! Whereas last year, the German inflation rate was at 2.4% higher than the previous year's rate in May.
In 2023, pensions in the new states observed a 4.39% increase, while the east had an increase of 5.86% to match. This alignment between the eastern and western pension rates was accomplished earlier than anticipated. Historically, the east has seen higher wage growth than the west in the past.
As predicted in the recently published annual pension insurance report, we can expect a slower rate of increase for pensions in the near future. The report estimates that from now until 2037, pension raises will average an annual increment of 2.6, which sums up to a total of 43% increase. Without any legal changes, the retirement level - which is currently at 48.2% - would be compelled to slide down to 45.0% by 2037. This means that pensions would no longer increase at the same rate as wages.
The government is taking action with a pension package aimed at maintaining the security of pensions around 48% in the future. In addition, they plan to channel at minimum 200 billion Euros from federal budgets into the capital market by the mid-2030s. These gains will help offset any potential upsurges in contributions. The legislation discussions will begin in the Bundestag from the end of June and must be finalized in the Bundesrat and Bundestag by October, according to the Rainbow Coalition circles.
Once approved by the Bundesrat, the law concerning pension raises will be made public in the Federal Gazette and become effective on July 1, 2024.
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The decision for the pension increase was made by the Federal Council, following recommendations from the Federal Ministry of Labor in regards to the German labor market. This increase is expected to positively impact the estimated 21 million pensioners in both eastern and western parts of Germany. The projected inflation rate, which was 2.4% higher than the previous year's rate in May, surprisingly did not affect the pension increase. The Bundesrat's approval of a 4.57% pension increase is set to take effect on July 1, 2024, and will result in a boost of 45.70 Euro for a pensioner receiving 1000 Euro.
