Olaf Scholz advocates that the real retirement age increases – and is praised for it. But it is precisely at this point in time that the state is setting new incentives for early retirement. Why and who has to pay for it.
Imagine if we citizens were all like self-driving cars: once programmed, we reliably jet in the right direction. And if the general conditions change, well, then you just rewrite the code a bit.
And sometimes that even works with us citizens: you set the right incentives and we head in the right direction. It only gets complicated when politicians say one thing but do the other: if programming and goals don’t go together, we refuse to serve.
That’s pretty much how it works with retirement. Chancellor Olaf Scholz (SPD) says that the proportion of people “who can really work until retirement age” needs to be increased. Economists applaud, entrepreneurs cheer – because the numbers are clear: in 2022, almost 60 percent of retirees who drew an old-age pension for the first time left work prematurely. The statutory retirement age will increase to 67 by 2031 and is currently 65 years and 11 months. But the real retirement age is 64.1 years. The numbers are dramatic in two respects: First, these people are missing from the labor market – there are currently 1.8 million vacancies that cannot be filled. And secondly, the pension fund is groaning under the financial burden.
Well, we humans are quite happy to perceive advantages as long as the disadvantages are acceptable. And that means for the pension fund: many people are more likely to stop working if they can live with the financial losses. The so-called pension at 63 is one way and has so far mainly benefited those born before 1953: Anyone who had at least 45 years of contributions has been able to retire earlier and without deductions since 2014. The age limit is gradually being raised. The state had calculated that 200,000 people would do this every year. According to the German Pension Insurance Association (DRV), there were more than a quarter of a million last year. People just take “the opportunities that they have by law,” said DRV President Gundula Roßbach.
Another way is to retire earlier and accept deductions. Almost every fourth person who retired last year did so. On average, people accepted a loss of 110 euros for this – month after month until the end of their lives. The system works like this: For every month that an employee stops working before the statutory retirement age, the monthly pension is reduced by 0.3 percent: makes a deduction of 3.6 percent for one year, 7.2 percent for two years and three years 10.8 percent. That sounds like a lot, but the German Economic Institute (IW) has now calculated that the deductions are still too low, which means that those who work until the statutory retirement age pay for those who retire earlier.
A finding with enormous explosive power and Jochen Pimpertz calculates it as follows: The IW economist compares how much money a retiree gets until death with early and – theoretically – with regular retirement. Life expectancy is crucial. The result is this: If a man retires a year before the statutory retirement age, he should actually accept a deduction of 4.6 percent – and not 3.6 percent as currently planned. Only then would the pension fund not be additionally burdened by early retirement. Because women live longer, the difference isn’t quite as dramatic for them. Conversely, this means that the government could increase the deductions, stabilize the system and would even ensure justice.
However, since January 1, 2023, exactly the opposite has happened: it provides further incentives for early retirement. Since then, employees who retire before the statutory retirement age have been able to earn unlimited additional income. Previously, only those who retired on the regular date could do this. This regulation, made in the early days of the Corona phase, was intended to motivate people to work more in view of the shortage of skilled workers. Now it has a high probability of exactly the opposite effect. How ironic: Actually, early retirees should work more, now more workers are taking early retirement. It’s difficult to program people’s behavior if you don’t think things through to the end.
The new regulation has a number of advantages for individuals, because it should be financially worthwhile for many to retire earlier and earn more. Finally, the biggest hurdle fell: the fear that the pension would be reduced because of a part-time job. Apart from the flexibility that potential early retirees would now have, it is psychologically attractive for many to gradually and self-determinedly transition from working life to retirement mode.
It is financially advantageous that those who earn more than 4987.50 euros a month through pension and salary are above the contribution assessment limit for statutory health and nursing care insurance. Every extra euro is tax-free. It is important to remember that pensioners are not entitled to unemployment and sickness benefits, which could have a significant impact if they are long-term ill. The solution to this could be to have only a partial pension of, for example, 90 percent paid out: In this way, social security is maintained and the minus in the pension is manageable. The deduction mentioned above and the effort for a tax return, which must be submitted further, cannot be changed.
Also read: This is how employees use the new pension law and collect thousands of euros extra
Whether early retirement plus additional income pays off is a fairly complex calculation with one big unknown in particular: how long you live. For example, those who have to shell out the top tax rate of 42 percent are better off with the early retirement combination up to the age of 80. After that, the losses from the pension cut exceed the initial additional income from work. With lower income and thus a lower tax rate, the age at which losses occur increases. And you don’t know if and how much the pension amount will increase.
However, it is also true that there is a growing group of unemployed people: 1.1 million dependent employees are now 67 years of age or older – 200,000 more than in 2015. According to a survey by the Institute for Labor Market and Occupational Research (IAB ) only essential for 43 percent. For 97 percent it is “fun at work”, 92 percent “want to continue having a job” and 91 percent “contact with other people”. According to the IAB, the average working week for pensioners between the ages of 65 and 74 is 14.5 hours. So even if it’s mostly mini-jobs: This number is grist to the mill of those who are also demanding an increase in the statutory retirement age towards 70 years – at least in the professions where the physical strain allows this. But that will not be possible with this government, say practically all political observers. Perhaps the citizens would be happy if words and deeds matched. Then the actions of the people can also be calculated more easily in advance.
The FOCUS Online guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
The article “Those who retire regularly finance early retirees” comes from WirtschaftsKurier.