The new German government reportedly plans to ease the state pension deficit by raising subsidies by E2.8 billion.

German newspaper the Frankfurter Allgemeine has reported that the additional funding is needed to prevent cuts in benefit or increase contributions to the scheme in the next four years. The contribution to the scheme in Germany is 19.5% of an employee’s salary.

The newspaper also revealed government plans to raise the retirement age to 67 from 65 in increments from 2012. The government will also consider raising the health care tax for retirees. Currently pensioners only contribute half of the tax, with the government subsidizing the rest.

The measures are part of a wider spending reform in Germany as the coalition government attempts to address the budget deficit. High unemployment of five million in Germany has increased spending on social welfare and decreased income from tax. A rise on VAT, cuts in pension and on welfare are the proposed solutions.

Following a narrow victory in the September German elections, the Christian Democrats (CDU) and the Social Democrats (SPD) have been in negotiations to form a grand coalition with CDU leader Angela Merkel as Chancellor.