Employees face pension cuts following rise in legal retirement age

On 29 November 2006, the federal government decided to raise the statutory retirement age from the current age of 65 years to 67 years. This increase will be gradually implemented between 2012 and 2029. People with as many as 45 insurance years will still be allowed to retire without any cuts in their pensions at the age of 65 years. Under certain conditions, people will be able to retire after 2029 from the age of 63 years onwards but will then have to face pension cuts. At the same time, the government decided to take measures to promote the employment of older people.

On 29 November 2006, the German coalition government of the conservative Christian Democratic Party (Christlich Demokratische Union, CDU), its Bavarian associate party the Christian Social Union (Christlich-Soziale Union, CSU) and the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) decided to raise the statutory retirement age from the current age of 65 years to 67 years. This increase will be gradually implemented starting in 2012. The age of retirement will increase from 2012 by one month per year and from 2024 by two months a year. In 2029, insured persons who were born in 1964 will then be the first to receive the regular pension from the age of 67 years.

People with as many as 45 insurance years will still be allowed to retire without any cuts in their pensions at the age of 65 years. Under certain circumstances, people will be able to retire after 2029 from the age of 63 years onwards but will then have to face a permanent cut in their pension of 0.3% for each month of earlier retirement. Long-term unemployed people will be obliged to take this early retirement option. The retirement age for disabled people will increase accordingly from the current age of 63 years to 65 years.

Promoting employment of older people

At the same time, the government decided to take measures in order to promote the employment of older people. Wage subsidies will be introduced to encourage older people to accept jobs paying less than their previous employment. The government will also introduce incentives for employers to employ unemployed people aged 50 years or older. It will be made easier for employers to employ people over the age of 52 years on a temporary basis, allowing for temporary contracts of up to five years with the same employer. Employees over 45 years of age in small and medium-sized enterprises (SMEs) with up to 250 employees will be entitled to receive vouchers for further training. The government aims at raising the employment rate of employees aged 55 years and above from the current rate of 45% to 50% by 2010.

In 2003, only about 20% of people reaching the statutory pension age were still engaged in employment covered by social security contributions. In 2005, only 20.7% of women and 35.8% of men aged between 60 and 65 years were in employment. Moreover, in 2005, the average statutory pension in western Germany was €923 for men (€944 in eastern Germany) and €502 for women (€634 in eastern Germany).

Reactions to government decision

In a statement (in German) to the press in February 2006, the President of the Confederation of German Employers’ Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), Dieter Hundt, had already welcomed the plans of the government to increase the statutory pension age. However, he criticised the plans to allow employees who had paid contributions to statutory pension insurance funds for 45 years to take retirement at the age of 65 years as this would weaken the aim of limiting social security contributions.

Annelie Buntenbach, member of the executive council of the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB) made a press statement (in German) declaring it unacceptable to raise the age of retirement in a situation where more than two thirds of employees were forced out of employment before the age of 65 years. For people with disabilities, it should be made easier to claim a pension, and the cuts in the case of early retirement should be repealed to provide better social protection to people with health problems.

Commentary

It can be assumed that the decisions of the government will lead to pension cuts for many future retirees. Given the current situation, it can be expected that it will be even more difficult for employees to reach the statutory retirement age in employment. Many people will continue to be forced to take early retirement due to long-term unemployment or bad health.

Heiner Dribbusch, Institute of Economic and Social Research, WSI

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