Over the last decade, Germany has tightened its generous early retirement laws, saving the government billions of euros and keeping more able-bodied people in the workforce. But a new law adopted this year, which is permitting many to retire with full government pensions at age 63, is about to erase the progress.
That prognosis grew more apparent during the first week of the new pension reform, when 50,000 63.year-olds applied for early retirement. The German federal government expects 240,000 people this year to take advantage of the new program, although the actual number could end up being much higher.
“It depends on how many of those who are 63 to 65 today take advantage of the new retirement program in order to retire early,” said Peter Weiss, a pension expert in Chancellor Angela Merkel’s Christian Democratic Union party. Those people, he adds, are not included in current Federal Employment Agency predictions.
For the Federal Association of German Employer Associations, the high number of early retirees is a problem.
“Many companies are losing important, skilled professionals over night, and they won’t be able to replace them all,” a spokesman for the association said. This will only exacerbate Germany’s ongoing shortage of skilled and unskilled workers, driven by its aging population.
Markus Kurth, a pension expert with the Green Party, said 90 percent of employees have taken partial retirement to leave professional life entirely.
Mr. Kurth said new tools are needed to encourage Germans to work longer and ease the growing labor shortage.
“Someone who is at the end of his working life and can no longer work full-time, for health reasons, should be able to reduce his working hours” but remain in the workforce, Mr. Kurth said.
The German government right-left political coalition is looking for ways to boost employment. A coalition task force examining flexible transitions into retirement must attempt “to truly enable all employees” to continue working part time as they age, Mr. Kurth said. He said the panel needs to devise an attractive partial retirement program and, in particular, incentives for low-wage earners to stay active.
The new early retirements threaten to undo years of reforms that had limited government pension costs and raised eligibility requirements, which had allowed many Germans at age 60 to retire with full government benefits. The subsequent legal tightening of benefits has led to fewer and fewer new claims, according to government statistics.
“Now many companies are losing important, skilled professionals overnight, and they won't be able to replace them all.”
The German Federal Pension Fund said fewer people are signing partial retirement contracts with their employers.
The number of Germans in partial retirement declined from 492,000 in 2011 to 428,000 in 2012. The number has declined by 244,000, or more than a third, since the government in 2009 cancelled a program to promote partial retirement.
“It’s very gratifying to see that working longer has become more attractive to many employees once again,” Mr. Weiss, the CDU expert, said. Many companies that tried to push their employees into partial retirement are now trying to keep older employees working longer.
“That’s good news,” Mr. Weiss said.
Germany introduced the possibility of partial retirement in 1996. The Federal Employment Agency originally made money available to fund the early retirements of thousands of workers, but discontinued the payments in 2009.
The financial burden shifted to employers and their employees, and on top, pensions were slashed by 7.2 percent.
The cuts in government pensions increase for those born in 1952 or later. This in effect raises the costs of early retirement in the private sector, and fewer workers left the labor force as a result.
In 2012, 60,150 Germany began receiving a pension for the first time after becoming unemployed or entering partial retirement – 20,000 fewer than in 2009. In 1995, at the height of the early retirement wave, 294,000 workers received early retirement benefits for the first time.
But that progress is now threatened by the new, deduction-free pension at 63.
Translated by Christopher Sultan