Germany's Welfare State on Brink of Collapse: Demographic Shifts and Stagnating Economy Put Pressure on Social Insurance System.

Germany's social security system is facing pressure from demographic shifts and economic stagnation, particularly in long-term care insurance. The system is expected to reach a tipping point by 2030, with the total contribution rate to social security rising to 44.5% of gross wages. Deficits in the public pension system, long-term care fund, and statutory health insurance are projected to increase, with the long-term care fund facing a shortfall of €3.5 billion next year and €12.3 billion by 2029. The system is expected to reach an existential crisis unless fundamental reforms are implemented.

Germany's social security system is facing significant challenges due to demographic shifts and economic stagnation, particularly in long-term care insurance. According to the OECD Employment Outlook 2025, the system is expected to reach a tipping point by 2030, with the total contribution rate to social security rising to 44.5% of gross wages [1].

The long-term care fund is projected to face a shortfall of €3.5 billion next year and €12.3 billion by 2029. These deficits, combined with those in the public pension system and statutory health insurance, pose a substantial threat to the system's sustainability. Without fundamental reforms, the system could reach an existential crisis.

The OECD report highlights that demographic changes, such as declining fertility rates and increasing life expectancy, are driving these challenges. The progressive exit of baby boomers from the labor market is reducing the pool of productive workers, while the dependent population is expanding. This demographic shift is expected to significantly drag down economic growth and the capacity of OECD countries to improve living standards [1].

Germany's social security system is particularly vulnerable to these trends. The report suggests that Germany's old-age dependency ratio is projected to rise from 31% in 2023 to 52% by 2060. This will lead to a decrease in the employment-to-population ratio, further straining the system's finances [1].

To address these challenges, the OECD report suggests several policy actions. These include providing family policies that help reconcile work and family life, reducing the costs of raising children, and mobilizing untapped labor resources through migration and increased labor market participation of older people [1].

Germany will need to implement these reforms to ensure the long-term sustainability of its social security system. Failure to do so could result in a significant reduction in GDP per capita growth and exacerbate intergenerational inequalities, with younger cohorts bearing a disproportionate burden [1].

References:

[1] OECD. (2025). OECD Employment Outlook 2025. Retrieved from https://www.oecd.org/en/publications/oecd-employment-outlook-2025_194a947b-en/full-report/component-6.html