Labour Minister Hubertus Heil (SPD) rejects a higher standard retirement age for pensions. But he, too, wants more older people to work, if they want to and can. That's why it was considered an important decision of the traffic light coalition that you can now continue to work as you wish even if you are already receiving an old-age pension – whether early or on the regular date. The previous additional earnings limit for recipients of early retirement pensions was abolished on 1 January.

Dietrich Creutzburg

Business correspondent in Berlin.

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On closer inspection, however, it has not become very attractive to work longer. This is now shown by an analysis by the German Economic Institute (IW), which provides information on the tax burden in such cases. Their conclusion: The change in the law will probably "contribute less to alleviating the shortage of skilled workers than to lead to deadweight effects". Those who were already planning to combine pension and work will be somewhat relieved by the change in the law. But the deductions from wages are still so high that they will hardly actively motivate anyone to do so.

To illustrate this, IW researchers Martin Beznoska and Ruth Maria Schüler have calculated for various case variants how much the so-called additional income to the pension is burdened with taxes and levies. For example, there is the single person who receives 20,000 euros a year (that's 1667 euros a month) as a statutory pension. And of this pension, after deduction of taxes and duties, he is left with 17,163 euros net. If the pensioner now works part-time, for example part-time for a gross salary of 25,000 euros a year, then this increases his net income – but only to 32,098 euros, including pension. Of the gross salary, 40.3 percent goes to the tax authorities and social security funds; net, only 14,935 euros remain as additional income.

Who is affected by the additional income limit?

Prior to the current reform, the problem of additional income limits arose primarily for people who want to combine early retirement with work – an interesting option for switching to less stressful part-time work in the late stages of working life and thereby cushioning the loss of income. In the past, this was only possible with a mini-job; Beyond that, things became highly complicated in terms of social law. But these pitfalls were eliminated with the abolition of the additional income limits without replacement.

What the Ministry of Labour expected from this reform last year can be read in the explanatory memorandum to the associated draft law: "The associated flexibility in the transition from working life to retirement can help to counteract the existing shortage of labour and skilled workers." The conclusion that the IW draws from the tax bill is, of course, this: "For many people who retire from working life with deductions before reaching the standard retirement age and want to continue working to a small extent, the mini-job will probably remain the more attractive option."

The potential for reduced continued employment would be great

Similar to the example case of the single, it looks like for a retired couple, for example one who collectively receives a pension of 35,000 euros. In this case, the man is completely retired, the woman continues to work in addition to her pension for 25,000 euros a year: Because of the deductions, the bottom line is that not even 15,600 euros net arrive at the couple – because of a deduction of 37.8 percent.

The potential to attract more people on the threshold of retirement age, at least for reduced continued employment, would be quite large: Of a total of 858,000 people who retired in 2021, more than half did so before reaching the standard retirement age, the analysis based on pension insurance statistics shows. 31 percent of retirements, i.e. the majority of early entries, were free of deductions. These recipients had accumulated 45 years of insurance and benefited from the so-called pension from 63. Another 21 percent accepted deductions for early retirement.

The Minister of Labour rejects a departure from the special rule for early retirement without deductions, as well as a standard retirement age of over 67 years. His main goal is to ensure that more people actually work up to the age limit. When the debate flared up again at the beginning of the year, Heil pointed to the progress already made: The proportion of employees in the 60 to 64 age group had risen from 20 percent in 2000 to more than 60 percent.

"If we manage to bring this quota to 70 percent, that would be 700,000 employed professionals and thus more contributors," he argued. According to his diagnosis, the fact that this has not yet been achieved is due to the fact that too many people get sick from work and companies show too little interest in older employees. The question of the extent to which it is worthwhile to work in addition to an early retirement adds another aspect to this debate.