German Pension Reform Adopts Swedish Capital‑Market Model

Germany's pension commission has recommended adding a capital‑market pillar to the statutory pension system, modelled on Sweden's "premiumpension". Under the Swedish scheme, a small part of contributions (2.5 % of the 18.5 % total) is invested in government‑run funds such as the default AP7 Såfa, which has delivered around 11 % annual returns with low 0.17 % fees. The German plan would channel employer and employee contributions into centrally managed funds, aiming to raise the funded share from the current 5 % of payouts to about 20 % by 2040.

The reform would shift Germany from a pure pay‑as‑you‑go system, which also receives over €100 billion annually from the federal budget, toward a mixed model that retains the pay‑as‑you‑go core while adding market‑linked assets. Officials, including Chancellor Friedrich Merz, see the change as a way to secure long‑term pension stability, though critics warn of market volatility, leveraged investments and the risk that returns can fall in downturns.