Abolishing the early retirement option without deductions for those with particularly long contribution periods - popularly known as the "Pension at 63" - would do far more than ease the strain on public budgets, according to a newly published analysis. It could also keep roughly 125,000 workers in employment.
Yet if the option were withdrawn, the study cautions, carefully designed exemptions would be needed to prevent hardship. Those are the central conclusions of research carried out by the DIW Berlin economic institute on behalf of the Bertelsmann Stiftung and presented on Wednesday.
Employees who have accumulated at least 45 years of pension contributions are currently allowed to leave working life two years ahead of the standard retirement age without accepting any reduction to their payments. With the standard retirement age now standing at 66 years and four months, that places the threshold for deduction-free early retirement at 64 years and four months. Between 250,000 and 280,000 workers take up this route into retirement for the first time every year.
As policymakers prepare a broader overhaul of the pension system, a wide range of measures is on the table to put the funds on a more stable footing - including a rethink of early retirement. Removing the option altogether could deliver savings of 9.5 billion euros for each annual cohort of new pensioners, according to the DIW's calculations.
To reach that figure, the institute drew on the effects of earlier reforms and built a model based on the 1957 birth cohort, the youngest age group that has already fully entered retirement.
The researchers assumed that, faced with the loss of the deduction-free pathway, those affected would push back their retirement by around ten months and then retire with reductions applied. In practice, that means they would still face lower incomes in old age despite working longer before drawing their pension.
Under this scenario, the pension insurance system alone would be relieved by 10.4 billion euros; once shortfalls in areas such as health and unemployment insurance are factored in, a net saving of 9.5 billion euros remains. For that reason, the early retirement provision deserves to be "put under review", said André Schleiter, a labour market expert at the Bertelsmann Stiftung.
The DIW also points to a clear upside for the economy. By delaying the moment people stop working, the reform would free up additional labour equivalent to roughly 125,000 full-time staff. These are frequently seasoned, highly qualified employees whose skills remain in demand across the workforce.
If the deduction-free route into early retirement were eliminated, the study stresses, special arrangements would still be required. People in fragile health or with unstable employment records, in particular, may be unable simply to extend their working lives and would consequently be pushed into retiring with reductions.
Possible safeguards floated by the researchers include individual health assessments, adjustments to occupational disability insurance, evidence of physically demanding work, and taking a person's average lifetime earnings into account.
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