The aging population is by far the biggest driver of the sharp increase in social spending in Germany, a leading economic research institute said in a report on Monday.

Germany’s social spending reached a record 32% of the budget in 2025, driven largely by an aging population and rising health care costs, the ifo Institute said.

Spending related to old age and illness accounted for around 70% of Germany's total social expenditure last year, according to the Munich-based institute.

The findings were included in its latest analysis, titled "Expansion of the Welfare State: Germany’s Social Budget 1992-2025."

The two categories accounted for more than 80% of the inflation-adjusted increase in social spending since 1992, with the institute identifying demographic change as the main structural cost driver.

"The key structural cost driver behind this trend is demographic change, which is exacerbating the shift in the burden within the German welfare state between the generations,” ifo researcher Lilly Fischer said.

Germany’s inflation-adjusted social spending has risen by around 70% since 1992, while its share of gross domestic product (GDP) increased by nearly 6 percentage points, according to the analysis.

The institute, however, said that the welfare system also served as an automatic stabilizer during periods of economic crisis, cushioning households against economic downturns.

Sharp increase since 2019

Inflation-adjusted social expenditure increased by 11.5%, or around 104 billion euros ($121.3 billion), between 2019 and 2025, according to the institute.

Additional health and long-term care spending for an aging population, along with higher federal pension payments, were the main contributors to the increase.

"The social budget is growing faster than the gross domestic product, which is why the weak economy is also contributing to the increase in the social budget share," ifo researcher Emilie Hoslinger said.

The institute said aging would continue to place an upward pressure on social spending in the coming years, warning that the trend could only be contained through reforms to Germany’s social security systems.

Tax-financed assistance and support programs, including basic income support and child benefits, accounted for nearly 20% of the country’s social budget in 2025, according to the institute.