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Raising Germany's Retirement Age Still Won't Avert Pension Time Bomb

A new demography study shows that the much ballyhooed rise in the retirement age to 67 simply delays the hard questions about how to finance pensions as Germany's population ages.

Article illustrative image Partner logo The weight of old age (MrTopf)

BERLIN - By 2030, retirement age in Germany will be 67. The new law has been in effect since January, and has Germans working progressively longer. Anyone born in 1947 and still working will have to work one month longer, while those born after 1964 will have to work the full two years longer before they can retire.

But the story doesn’t end there. According to calculations by the Wiesbaden-based Federal Office for Population Research (BiB), due to higher life expectancy, retirement at 67 will soon cease to be an effective means of financing the pension system: people who get older and older need their pensions for that much longer, and this also applies if they stop working at age 67.

So by 2030, when the full transition has been made, the question will again pose itself: how can pension payments for older workers be financed from what younger workers are paying in?

According to Stephan Kühntopf of the BIB, moving the age up to 67 will work – but only for 18 years. "If you do the math, a retirement age of 67 is just an intermediary step before further reforms will be needed in 10 to 15 years time," he says.

According to BIB figures, a man born in 1946 who retires at 65 requires an average of 18.8 years of pension payments. For women the figure is 22.2 years because women have a longer life expectancy.

A retirement age of 67 reduces the number of years by an average of a quarter year to 18.5 and 21.9 respectively. But those born after 1964 can expect to need payments longer because they can be expected to live longer than previous generations. By way of comparison: men born in 1910 received payments for an average of 13.5 years, and women 17.8 years.

Such figures are grist for the mill of economists like Michael Hüther, director of the employer-friendly Cologne Institute for Economic Research (IW). They show, he says, that moving the retirement age to 67 "was more than justified."

The magic number?

Hüther too sees a retirement age of 67 as just an intermediary step, and believes that the time has come to seriously consider the retirement age he supports – 70. Doing so can no longer be seen as entertaining “scenarios of intimidation,” he says: 70 represents a "fair contribution for future generations of pensioners" to stabilizing the system. "Which is why after 2029, when a retirement age of 67 is fully implemented, we need to keep it up and quickly move the age up even further," Hüther argues.

A spokeswoman for Minister of Labor Ursula von der Leyen said that raising the retirement age to 67 was a necessary step to stabilize the financing of pensions, and that the change wasn’t only to be seen in the context of increased life expectancy. Also playing an “important role” was the number of people who would be able to go on working, and the overall situation on the jobs market.

The Confederation of German Trade Unions (DGB) agrees with that with one notable exception: it is against a retirement age of 67.

Ingo Nürnberger of the DGB doesn’t doubt the reliability of the new figures relating to a retirement age of 67 but says: "The decisive question now as before is whether or not there will be jobs for people until they are 67. Right now your chances of getting hired if you’re older are under average, so what you’re really talking about here is people getting less pension." Only one in four people over 60 years old currently has a full time job, he added.

Nürnberger believes the longer retirement periods due to longer life expectancy can eventually be financed if chances for older people to find jobs were to improve.

Read the article in German in Die Welt.

Photo - MrTopf

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About this article source Website: http://www.welt.de/

Die Welt (“The World”) is a German daily founded in Hamburg in 1946, and currently owned by the Axel Springer AG company, Europe's largest publishing house. Now based in Berlin, Die Welt is sold in more than 130 countries. A Sunday edition called Welt am Sonntag has been published since 1948.

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