Germany has once again placed pensions at the center of the European debate, at a time when it is preparing a sharp increase in military spending and trying to consolidate public accounts. The issue is sensitive because it brings together two long-term pressures: the aging of the population and the need to reinforce Defense in a more demanding geopolitical framework.
Germany increases Defense and reviews pension accounts
The German federal budget for 2026 foresees a significant increase in the Defense budget, from 62.4 billion to 82.7 billion euros, to which will be added 25.5 billion euros from a special budget for the Armed Forces. According to the German Government, this money will mainly be used for large armament projects, purchasing ammunition, strengthening military capacity and hiring up to 10,000 more soldiers in 2026.
At the same time, the German Ministry of Labor admitted, at a Government press conference, that it will have to contribute to budgetary consolidation, within the scope of a 1% saving required from ministries. In the case of the authority responsible for pensions, these savings represent around two billion euros, although the Government said that the details were still under internal negotiation.
Pensioners’ concerns arise because the German Ministry of Finance’s own budget report points to a reduction in the social security sustainability reserve, from 41.5 billion euros to just over 32.4 billion euros this year.
The same document predicts that the contribution rate will remain at 18.6% this year, but recognizes that the commission created to study protection in old age will have to present proposals on sustainable financing and strengthening the contribution base.
Reforms increase now, but pressure remains
Despite these signs of pressure, the German Government also approved a 4.24% increase in pensions from July 1st, covering around 21.5 million pensioners. Germany still maintains a pension level guarantee of 48% until 2031, but the fundamental debate continues to focus on the future sustainability of the system, in an aging country with greater military commitments.
According to the Organization for Economic Cooperation and Development (, public spending on pensions in Germany could go from 10.5% of GDP in 2025 to 11% in 2045. In Portugal, the same projection is heavier: 12.8% of GDP in 2025 and 15.1% in 2045, before starting to fall in the following decades. This means that the Portuguese effort on pensions will, according to these projections, be much greater than Germany’s in the peak demographic pressure.
Portugal more exposed by aging and debt
Portugal enters this debate with less fiscal margin than Germany. The State Budget for 2026 predicts that Portuguese public debt will fall to 87.8% of GDP, while data from the European Central Bank places German debt at 63.5% of GDP in 2025. Even with the downward trajectory of national debt, the difference shows that Portugal remains more vulnerable to permanent spending shocks.
In the Portuguese case, the Government guarantees that the Social Security Budget for 2026 reinforces social protection and that all pensions will be updated in accordance with the law. Minister Rosário Palma Ramalho, cited by Jornal Económico, also highlighted the increase in the Solidarity Supplement for the Elderly by more than 40 euros and an overall increase in social benefits of around 6.3%.
Even so, the Public Finance Council warned that, in 2024, effective Social Security expenditure grew by 11.8%, with emphasis on pension expenditure, which increased by 13%. The same report points out that, for the first time in the last three years, expenditure grew more than revenue, despite Social Security having recorded the largest surplus since 2010.
NATO changes standards and puts pressure on budgets
The new pressure also comes from NATO. At the Hague Summit, allies committed to investing 5% of GDP per year in Defense and security until 2035. Of this total, at least 3.5% of GDP should finance core Defense needs, while up to 1.5% could be accounted for in areas such as critical infrastructure protection, cybersecurity, civil readiness, innovation and the Defense industrial base.
To help Member States finance this effort, the European Union (EU) created the instrument, which provides up to 150 billion euros in long-term loans for joint purchases of military equipment. The EU Council explains that these loans will be granted under competitive conditions and based on national plans presented by interested States.
Portugal is among the countries included in the first wave of national plans approved by the European Commission under SAFE. Brussels says this approval paves the way for the availability of long-term, low-cost loans to bolster military readiness and acquire modern equipment.
CFP warns of risks when flexibility ends
The Public Finance Council recognizes that the proposed State Budget for 2026 is, in terms of net expenditure, in line with the agreed trajectory, considering the European flexibility associated with investment in Defense. But he points out that the budget report is silent on explaining the trajectory of net expenditure in relation to previous documents.
In analyzing the Budget proposal, the CFP calculates that Defense spending in Portugal will increase from 3,332 million euros in 2025 to 3,878 million in 2026, equivalent to 1.2% of GDP in the national budget concept. The CFP itself recalls, however, that the concept used by NATO is more comprehensive, also including expenses such as security forces, military schools, military hospitals and military pensions.
The central question, therefore, is not just whether Defense will take money directly from pensions. The risk is overall: more military spending, an aging population, still high debt and insufficient economic growth could force governments to choose between increasing taxes, issuing more debt or containing other public spending.
Growth will be decisive to avoid new austerity
The OECD identifies demography as the main driver of the increase in pension spending and recalls that, on average, public spending on pensions in the countries analyzed is expected to rise from 8.8% of GDP in 2023 and 2024 to 10% in 2050. In the European Union, the projection points to an increase from 9.9% of GDP in 2023 to 10.9% in 2050.
For Portugal, the margin will be greater the stronger the economic growth. If the economy grows, there is more contributory and tax revenue to finance pensions, health, public salaries and Defense. If growth fails, the German debate could turn into a warning for other European countries, including Portugal, where the pressure on pensions is already greater and where debt still conditions the State’s choices.
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