Germany plans to create a public pension fund modeled on Sweden’s, investing pension contributions in capital markets

Executive summary: Chancellor Friedrich Merz endorsed a proposal to invest a share of pension contributions in the stock and bond markets, with the goal of establishing a Swedish‑style public pension fund in Germany. The move could reshape Germany’s pension financing, increase exposure to equity markets, affect long‑term fiscal sustainability, and redirect substantial savings into domestic and European capital markets.

Who is involved: German federal government (Chancellor Friedrich Merz, Ministry of Labour and Social Affairs), pension administrations, potential asset managers, and the Swedish AP‑fund model as reference.

Likely next: Draft legislation will be prepared, followed by stakeholder consultations with unions and employer groups, a possible pilot allocation to equities, and a parliamentary vote later in 2026.

Chancellor Friedrich Merz backs a proposal to shift part of Germany’s pay‑as‑you‑go pension contributions into funded investments, aiming to boost returns and ensure long‑term sustainability. The plan mirrors Sweden’s AP‑funds model, where a portion of pension assets is managed in equity and bond markets. Implementing the idea would require new legislation, oversight by BaFin and EU pension regulators, and could steer significant domestic savings into European capital markets. Risks include market volatility, political opposition from labor groups, and the need for robust risk‑management frameworks.