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The demographic factor in the pension formula was decided by the CDU/CSU FDP coalition 1998. Reasons for this were above all the constantly growing life expectancy and the decline in the birthrate continuing at the same time in Germany, consequently the incomes of the old age pension insurance sank and the expenditures rose. Besides the costs of the unit had been put down dependent on the government Kohl to a substantial part on only the pension system financed by persons employed (early retirement, Vorruhestand), which contributed to the fact that the ancillary wages did not reach one any longer acceptable order of magnitude.
The contributions should be kept by consideration of the higher life expectancy stable for legal old age pension insurance. The change of the pension formula would have meant that the pension level rises more slowly, which would have equaled material a shortening of the pensions.
Before the demographic factor could step into force, it was again abolished by the Red-Greens Federal Government 1998 and introduced instead of its a strong national subsidization of the pension system. In order of size the expenditures for it corresponded for instance to the incomes from the again introduced eco-tax. In the year 2003 the cancelling of the demographic factor was called by the Federal Chancellor at that time Gerhard error.
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