Germany’s pension overhaul could boost inflows by €90B, Apollo estimates

Germany just greenlit the most sweeping pension reform it has seen in over 20 years, and the numbers attached to it are staggering. Apollo Global Management estimates the overhaul could pump an additional €90 billion ($105 billion) in annual inflows into the country’s three-pillar pension system once fully implemented.

To put that in perspective, Germany’s federal pension subsidies hit €118 billion in 2024, consuming roughly a quarter of the entire federal budget. The reform is designed to stop that fiscal bleeding before demographics make it terminal.

What the reform actually does

Chancellor Friedrich Merz endorsed a comprehensive reform package on June 23, 2026, containing 33 separate measures. The centerpiece is a new mandatory capital-funded pension pillar modeled on Sweden’s system, which requires 2% of gross wages to be invested in capital markets, with costs split between employers and employees.

That 2% figure doesn’t arrive overnight. The contribution starts at 0.5% and phases up to the full 2% by 2031, giving companies and workers time to adjust. Apollo’s analysis attributes €30 billion of the projected €90 billion annual increase specifically to these new statutory contributions.

On the private pension side, Germany is scrapping its much-maligned Riester products and replacing them with new Altersvorsorgedepot accounts, set to go live in January 2027. Riester products charged fees as high as 4%. The new accounts cap fees at 1%.

The reform eliminates mandatory lifetime annuity conversions and promotes low-cost index funds as the default investment vehicle.

The retirement age will also be linked to life expectancy going forward. Initial projections suggest the retirement age could rise to nearly 70 by the early 2090s. Early retirement options will be curtailed, and the reform expands pension coverage to include self-employed individuals and civil servants.

Capital markets bracing for a flood

Morgan Stanley forecasts an additional €40 billion in annual capital-market flows as a direct result of the reforms. Vanguard, meanwhile, anticipates up to €150 billion in cumulative new accounts over the first five years.

For traditional European insurance companies, the combination of capped fees, eliminated annuity mandates, and government-endorsed competition from passive vehicles amounts to a significant regulatory headwind. Companies that relied on captive pension savers paying 3-4% in annual fees will need to find new revenue streams or accept lower margins.

Why this matters beyond Germany

Germany’s pension subsidies already consume a quarter of its federal budget. If Berlin’s overhaul succeeds in reducing fiscal pressure while boosting retirement outcomes, other countries will likely study it as a template. Sweden’s funded pillar, which inspired the German model, has been running since the late 1990s.

The €90 billion figure from Apollo represents the fully ramped scenario, which won’t arrive until the contribution phase-in completes in 2031 and beyond.

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