The author analyzes the 125-year long development of the state pension system in Germany and its current status. Its main stages and change of paradigms are identified. The post-WWII development is addressed in detail especially the further transformation of the pension system set up at the time of social market economy’s emergence in the 50s. The challenges that the pension system in Germany has confronted at the beginning of new millennium are described including the negatively impact on the balance of insurance contributions and pension payments. The demographic factor is specifically addressed. Solutions introduced in course of reforms implemented by Gerhard Schroeder’s government mean a new change in the paradigm. Further political steps are described as well as main components of consequent reforms and their political driving forces and current interim results.