Amounts in the hundreds of billions: These are the sums handled by the pension funds year after year. In 2024, the total revenue of the German Pension Insurance (DRV) stood at 402 billion euros.
This puts the pension system on par with the entire federal budget. Nevertheless, the money never seems to be enough. The financial situation of the pension insurance system is a recurring topic in politics and the media.
Critics of the statutory pension system repeatedly point to the subsidies that the federal government pays into the pension fund.
In fact, these subsidies also involve enormous sums. In 2024, a total of around116 billion euros flowed from the federal budget to the pension insurance system.
The message some draw from this is that a system that regularly requires such high levels of support cannot be sound. This assertion is usually followed by calls for pension cuts, a higher retirement age, and more private retirement savings.
The steadily rising federal subsidy makes for easy headlines—and helps stir up sentiment against the pay-as-you-go system of the statutory pension.
But is there any truth to this criticism?
Misleading Numbers
First, it’s important to remember a basic rule when dealing with numbers: A number on its own usually tells us very little. It depends on the context, on the relationship.
This means that the specific figure—that is, the amount in billions from the federal budget—reveals very little about the financial strength of the pension insurance system. It is more informative to look at what share of the pension insurance system’s total expenditures the federal government covers with its subsidy.
Here, it becomes clear that this share has remainedlargely constantfor decades—despite a rising number of retirees. The claim that the pension insurance system is increasingly becoming a subsidized operation is therefore false.
The size of the federal subsidy is put into even greater perspective when viewed in relation to economic output.
For even though the subsidy is rising in absolute terms (which is hardly surprising, given inflation alone), when compared to economic output, the subsidy has decreased significantly over the past 15 years. In 2009, the federal government supported the statutory pension system with approximately 3.3 percent of gross domestic product (GDP). By 2022, that figure had fallen to 2.8 percent of GDP.
This, too, makes it clear that, given Germany’s economic strength, there is no question of costs“spiraling out of control.”
So much for the raw numbers.
Benefits Without Contributions
But there is also a much more important reason why pension subsidies from the federal budget are justified—and perhaps even too low. The reason lies behind the cumbersome terms “non-insurance-based” or “non-contributory” benefits.
What does that mean?
Simply put: These are benefits that the pension insurance system finances even though no pension contributions were ever paid for them.
One example is the so-called “mothers’ pension”—that is, pension entitlements earned during periods spent raising children. During these periods, parents do not pay contributions into the pension fund. Yet their pension still increases.
There are a whole range of such “non-contributory” benefits. Many of them are important and make sense, as they ensure social justice and security. The basic pension is also one of these benefits—an important form of support for people who have worked for a long time but earned little.
The crux of the matter is this: Such benefits are the responsibility of society as a whole, not just of those who pay contributions. Therefore, they should also be financed by the community of all taxpayers. This is precisely the purpose of the federal subsidy, which, after all, comes from tax revenues.
Pension Fund in the Red
So the question is not whether the subsidy is justified. Rather, it is simply whether it is large enough—namely, large enough to cover all“non-contributory” benefits. And this is where it gets complicated.
This is because there is no universally accepted definition of these benefits. The definition also depends on “political value judgments,” as the German Pension Insurance notes in a recent analysis.
The Pension Insurance Fund itself uses two different standards. According to the narrower calculation method, “non-contributory benefits” amounted to around 68 billion euros in 2023. According to the broader definition, the figure was over 124 billion. This is money that the Pension Insurance Fund is required by law to spend, even though no pension contributions were ever paid toward it. These expenditures were offset by federal subsidies of around 84 billion euros.
In the worst-case scenario, the subsidies were thus 40 billion lower than the actual expenditures. The bottom line is that the pension insurance system would be significantly in the red. Experts say that this is precisely the case. The pension insurance system itself also assumes this to be true.
It is therefore quite likely that the contributors—employees subject to social security contributions—are financing public services. Services that should actually be shared among all taxpayers , including those who do not pay into the pension system because they are, for example, civil servants or self-employed individuals.
If these responsibilities were financed fairly, the pension fund would be much more robust. That is what the debate should focus on—not on dubious number-crunching that serves only to disparage the statutory pension system.
