German ministers officially agreed Wednesday to pension reforms which for a time threatened to collapse the coalition between Chancellor Angela Merkel's conservative CDU and the centre-left SPD.

From 2021 the government will spend 1.3 billion euros ($1.4bn) a year topping up the basic pensions of around 1.3 million low-income recipients, under a law now approved by Merkel's cabinet for deliberation by MPs.

"The creation of the new basic pension will contribute to more social justice in our country," said SPD Labour Minister Hubertus Heil.

The two camps in the ruling coalition were at loggerheads for months over pensions in a country facing an ageing population.

German ministers backed the pension reform at a cabinet meeting
German ministers backed the pension reform at a cabinet meeting AFP / Odd ANDERSEN

A flagship SPD policy which the CDU had sought to block, the reform threatened to blow the government apart before the two sides reached a compromise in November.

Labour minister Heil claimed the reform would benefit "women in particular", especially those in low-paid service jobs.

He gave the example of a hairdresser who, having worked 40 years at the minimum wage, would see their monthly pension rise from 512 to 960 euros under the new system.

He added that the top-ups would also be a boon for those in the former communist east, where economic uncertainty and lower spending power have contributed to the rise of the far right in recent elections.

The reform is above all a victory for the SPD, which continues to languish in the polls despite the surprise election of a new, left-leaning leadership duo in November.