Early retirees have been able to earn unlimited additional income since the New Year. So far, there have been upper limits for this. Those who exceeded it had to forego part of their pension. The new specifications can be used cleverly. This shows an example calculation.
In order to be able to compensate for the losses, citizens in early retirement (“early old-age pension”) are allowed to earn certain additional amounts. Until 2020, the amount was 6300 euros per year (525 euros per month). At that time, those who earned more had to have 40 percent of the higher amount offset against their pension.
In connection with the Corona crisis, the federal government increased the maximum additional earnings for 2020 to 44,590 euros. In the years 2021 and 2022, the maximum limit rose to 46,060 euros each (i.e. a good 3543 euros per month). This was to attract retired medical professionals to immunization programs.
Since January 1, 2023, any restriction on additional earnings for early retirees has been removed. This means that early retirees can now earn unlimited additional income without accepting a loss of pension.
Sample calculation: Mr. A. is in early retirement and has a lucrative consultancy contract. This brings him in 56,060 euros per year (monthly 4671.67 euros).
In 2023, this high additional income will not have any negative consequences for Mr. A’s pension. As late as 2022, the “side job” led to a partial pension reduction.
The following formula applied: 40 percent of the amount in excess of the permitted maximum earnings was offset against the pension.
The income of 56,060 euros was 10,000 euros above the maximum rate. 40 percent of the 10,000 euros were offset against early retirement, so that A. had a pension loss of 4,000 euros per year (333.33 euros per month).
Thanks to the new regulation, it will be possible in 2023 to take early retirement and work (full-time) at the same time without having to fear pension cuts. According to the German pension insurance, the purpose of the reform is “that the end of the employment phase and the beginning of retirement are more decoupled from each other”. This makes it possible to extend the employment phase or to start retirement earlier.
According to the regulations, two groups of employees are allowed to use early retirement:
Since January 2023, employees with 45 insurance years have been able to apply for early retirement without deductions and continue to work at the same time. You will then be able to enjoy two forms of income: early retirement and an additional salary. Anyone who does this makes maximum use of their right to early retirement without deductions – instead of claiming it later and thus enjoying the pension for a shorter period of time. The “Wirtschaftswoche” points this out.
According to the report, anyone who proceeds in this way does not risk any disadvantages. Claiming an early retirement pension is not associated with termination of the employment contract. As a rule, this only occurs when the regular old-age pension begins (in 2023 for those born in 1957 at the age of 65 and 11 months). Collective agreements regulate the details for many sectors.
However, pension experts advise interested parties to only apply for a 99 percent partial pension in addition to their earned income. The flexible pension law makes this possible. Advantage of the 99 percent rule: Citizens are still entitled to sick pay and short-time work benefits. This is not possible with a full pension.
Anyone who is entitled to an early retirement pension that is subject to a deduction should contact a pension advisor or the German pension insurance company to find out whether the structure of early retirement plus income from work is worthwhile for them.
The combination of early retirement plus continued work is worthwhile for employees of advanced age because they increase their retirement benefits by drawing (early) retirement for a longer period of time. The longer reference period has a positive effect. The article shows that.
Sample calculation: A 63-year-old can start his regular old-age pension in May 2026. His pension entitlement is then 1800 euros per month.
In March 2023 his pension entitlement is 1600 euros. If he applies for early retirement at this point in time, he has a pension loss of 10.8 percent (36 months per 0.3 percent deduction). That’s 173.80 euros a month, leaving him with a monthly pension of 1427.20 euros. A 99 percent partial pension would be 1412.93 euros.
The early retiree would receive this for 26 months until the start of his regular old-age pension in October 2025. After that, his old-age pension would be assumed to be 1630 euros – thanks to the further contribution payments during his early retirement. If items such as taxes and future pension increases are left out, the following sample calculation results for a pension up to the age of 85:
The sample calculation shows: The early retiree waives part of his regular old-age pension. On the other hand, he is drawing his pension for longer overall and, on balance, has higher pension income.
The FOCUS Online guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.