The International Monetary Fund (IMF) has advised Germany to index pensions-in-payment to inflation rather than wage growth, in its Staff Concluding Statement of the 2025 Article IV Mission for Germany.

It advised that savings could be “generated from reforms of the pension system”, which faces increasing pressures from an “upward trend in the dependency ratio”.

“Such reforms could include indexing pensions-in-payment to inflation rather than wage growth, a change that is likely to be progressive given that higher-income individuals tend to live longer and hence benefit more from rising real incomes in retirement,” the IMF stated.

The IMF also recommended to Germany that improving the actuarial fairness of early retirement pension deductions could “generate savings while boosting growth through improved incentives for longer working lives”.

More broadly, the IMF found that the country’s reform of the debt brake rule earlier in 2025 has “set the stage for economic recovery”, which will be driven by a gradual increase in domestic investment and consumption.

However, it warned that medium-term prospects remain constrained by rapid population ageing and subdued productivity growth.

“It is thus essential to ensure that fiscal space now available is used judiciously to boost the economy’s longer-term productive capacity.”

This, the IMF recommended, should be complemented by pro-growth structural reforms, including measures to foster more innovation and digitalisation, cut red tape, reduce labour supply constraints – especially among women, older workers, and immigrants.

Germany was also told to deepen European economic integration by reducing barriers to cross-border trade and investment and better integrating capital and energy markets.

“Continued prudent financial sector policies are also important to contain risks,” the IMF stated.

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