Germany’s federal budget is facing a massive fiscal squeeze. The country's independent financial watchdog, the Federal Court of Auditors (Bundesrechnungshof), has issued a stark warning: paying for the national pension system is rapidly becoming unsustainable.
According to a report sent to the Bundestag's budget committee, the government is on track to spend an unprecedented share of its tax revenue just to keep the state pension system afloat.
The Growing Budget Black Hole
Currently, around 29% of all federal tax revenues are channeled directly into the statutory pension insurance fund. If current laws remain unchanged, that share is projected to climb to 36.7% by 2040.
However, under newly proposed reform packages, the situation could become much worse. Auditors warn that the supplementary funding required by the pension system could skyrocket to nearly 46% of all tax revenues.
In plain terms, nearly half of every tax euro collected by the German government could soon be used solely to fund pensions, leaving far less room for crucial investments in infrastructure, education, defense, and green energy. Already, almost a quarter of the entire federal budget is swallowed by pensions—totaling a projected €127.4 billion in 2026 and rising to €132.0 billion in 2027.
Why the Pension Reforms are Risky
The auditors are pointing fingers at recent policy decisions and planned reforms.
A major pain point is the coalition’s initial pension package passed at the end of 2025, which is projected to cost the federal budget €210 billion by 2027. This package expanded the Mütterrente (pension benefits for mothers) and temporarily deactivated the "demographic factor"—which normally scales down pension increases as the population ages—until 2031.
Additionally, the government's plan to guarantee a fixed pension level (Rentenniveaugarantie) for new retirees carries immense financial risk. While the state intends to offset these costs through a new equity-based pension fund (Kapitalrente), the auditors warn of a major catch: if the introduction of this fund is delayed, or if stock market yields underperform, the federal budget—and therefore the taxpayer—will have to step in to cover the difference.
What Lies Ahead
The government’s pension commission has proposed a reform concept that aims to distribute the financial burden across all parties, including retirees, current contributors, and the federal budget.
However, the auditors emphasize that the current proposal fails to put a cap on the costs allocated to the state. Without concrete spending limits, they warn, the federal budget will be unsustainably exploited, leaving Germany's fiscal future on highly unstable ground.
