Germany: Study on transitions from work to retirement

Recent research shows that workers taking early retirement in Germany are more likely to be in large establishments with a predominantly male workforce. Those working in small establishments, particularly with a predominantly female workforce, are less likely to take early retirement. The study, by Duisberg University, uses data from a 2010 works council survey.

Increasing role for collective bargaining in retirement schemes

Retirement policies in Germany have shifted dramatically since the 1990s and 2000s when, in contrast to other Member States, early retirement was actively promoted. Reforms include:

  • an increase in statutory retirement age to 67 years;
  • reduced pensions for people opting to take early retirement;
  • the abolition of subsidies for partial retirement schemes in 2009 by the Federal Employment Agency (BA).

Although trade unions protested about these changes, the coalition government did not re-establish an early retirement scheme in its 2014 pension reforms. However, it did allow employees to retire at 63 with their full state pension if they had worked for 45 years.

The 2014 reforms have fired a debate about raising the retirement age to 70 years, as well as about early exit options and work-retirement schemes. There are a growing number of so-called ‘demography agreements’ and ‘demography funds’. These allow workers to ‘save’ working time during their active working phase and then to redeem it before they retire. Contributions from an agreed demography fund are used by the employer to increase payments to the employee during partial retirement.

Research by Thomas Fröhler from Duisburg University on the transition into retirement (in German), published in February 2015, highlights the role of agreed early exit options at establishment level. The study is based on 2010 data and thus does not reflect more recent collective agreements. It is, however, of interest because it shows the use of early exit options by various types of establishments and workers.

About the study

The study's author draws on 2010 data from the works council survey conducted by the Institute of Economic and Social Research (WSI) and the findings of a research project by University Duisburg-Essen on work-retirement schemes. The WSI survey used a representative sample of private establishments with 20 or more employees and a works council, and covered all sectors and regions. It also involved 1,984 worker representatives (one worker representative per establishment) in computer-assisted telephone interviews (CATI). The author says that the findings cannot be used to make any assumptions about work/retirement measures in establishments without worker representation, in microbusinesses or in public administration.

Work-retirement options: instruments and measures applied

The findings indicate that 75% of all establishments with works councils offer at least one early exit option.

  • More than half of the establishments (55%) implement the early partial retirement scheme.
  • Some early exits (14% of all cases) are financed by a form of compensation until occupational and statutory pensions can be drawn.
  • Long-term working time accounts are used in 11% of establishments.
  • Partial retirement is combined with part-time employment in 11% of establishments.
  • Workers leave their jobs in 6% of establishments by drawing unemployment benefit in combination with compensation or other establishment-based provisions.

About a third of workers make use of early retirement options and some 30% use long-term working time accounts. Other measures are used much less. Partial retirement combined with marginal part-time work is used the least (14%).

Role of agreed measures

About 52% of all measures (mostly early retirement schemes and long-term working time accounts) are covered by a collective agreement. When the national partial retirement scheme ended, the opportunity for workers to use this kind of option was still offered under some major collective agreements even though the employers were no longer subsidised to do so by the Federal Employment Agency. Such agreements can be seen, for example, in the metal/electrical sector, the chemical sector, the food processing sector and the public sector.

An additional 13% of retirement schemes are covered by agreements concluded by organisations’ works councils and management. Most of these agreements settle working time accounts, supplements to pensions or supplements to unemployment benefit.

The remaining 33% of the early exit options rest on individual negotiations or contracts.

According to the worker representatives, retirement measures based on collective agreements cause conflict in only 9% of the establishments. Measures agreed by works agreements – particularly supplements to pensions and unemployment benefit – are more difficult to apply and cause conflicts in 17%–19% of all cases. The main reasons for conflict are the costs involved and the complexity of regulations. Work organisation or labour shortages are of less concern.

Indicators

Surprisingly, according to the study's author, no significant impact on the provision of retirement schemes correlates with the age distribution of the workforce, the quality of the working conditions, or the region in which the establishment operates (for example eastern or western Germany). Instead the important indicators are:

  • collective bargaining coverage;
  • establishment size;
  • gender distribution of the workforce;
  • the application of demography analyses by the organisation’s human resources department.

Large establishments with a predominantly male workforce, collective bargaining coverage and demography analyses apply the schemes most often; small and medium sized establishments with a high share of female workers apply them the least.

The schemes are mostly used by male and female workers with some – but not severe – health problems. The author assumes that workers with more severe health problems stop working before reaching the eligible age for early exit options.

The data show significant differences in the use of partial retirement and long-term working time accounts by gender and by working time. These schemes are more often used by full-time workers than by part-timers, by male workers rather than by female workers, and by workers with medium earnings rather than by those with lower earnings.

Workers with lower wages and lower qualifications combine partial retirement with marginal part-time work, or with unemployment benefit and supplements more often than workers with higher wages and qualifications.

Conclusion

The study's author concludes that the growing role of collective bargaining and negotiations at establishment level on early retirement will have patchy results as, although agreed work retirement schemes will emerge, not all sectors and establishments will have them. Indeed, these uneven developments can already be seen.

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