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Will Germany raise the pension age to tackle its worker shortage?

Imogen Goodman
Imogen Goodman - [email protected]
Will Germany raise the pension age to tackle its worker shortage?
Two elderly pensioners at the seaside in Timmendorf, Mecklenburg Western-Pomerania. Photo: picture alliance/dpa/dpa-Zentralbild | Jens Büttner

A debate has opened up in Germany about the best way for the country to boost its workforce - and some are suggesting that asking employees to work longer is the answer. How likely is this to happen?

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What's going on?

It's no secret that Germany is struggling to find enough workers to fill roles in almost every industry imaginable, from carpentry to childcare. Experts estimate that around 400,000 extra workers per year are needed to fill vacancies, and they say the shortage is having a knock-on effect on both the economy and the country's pension fund.

So far, the traffic-light coalition of the Social Democrats (SPD), Greens and Free Democrats (FDP) has set its sights on immigrants to plug this gap. They want to encourage qualified workers to come to the country with a points-based immigration system and make it more attractive for people to stay by loosening citizenship rules

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But some politicians and lobbyists want the government to go even further. They point to the fact that many people in Germany are entering retirement early and say something needs to be done to keep people working longer. 

This week, Chancellor Olaf Scholz (SPD) also weighed in on the discussion. "We need to increase the proportion of people who can really work until retirement age," he told the newspapers of the Funke Media Group. "Many find that difficult today."

His comments sparked a renewed debate about whether the current pension system is fit for purpose and what needs to be done to stop over-60s entering retirement so soon. There have even been calls to get rid of the official pension age and switch to a more flexible system. 

READ ALSO: When are people in Germany retiring?

How does the current pension system work in Germany?

Put simply, Germany's state pension system is based on the contributions you make throughout your working life, which can be topped up with private schemes that you can organise yourself or through your employer.

Anyone who's paid into the system for at least five years can get their pension once they reach retirement age. Those who've paid in for 35 years or more but earned less than 80 percent of the average salary have access to a 'basic' pension (Grundrente) that's set at a certain level. Generally speaking, the amount you receive is based on your salary and contributions over time, with those who earn less than the average salary recieving fewer pension 'points' than those who earn more.

Two retirees sit on a park bench in Dresden

Two retirees sit on a park bench in Dresden. Photo: picture alliance/dpa/dpa-Zentralbild | Sebastian Kahnert

When you retire, your points for each year you paid into the pension pot are totted up and used to calculate your pension. If you've paid in for long enough, you can generally expect to receive around 70 percent of your net salary. 

Another factor that affects pensions is when you retire. Currently the German retirement age is set at 65, but this will gradually be increased to 67 by 2029. Early retirement is possible - but it comes at a cost. Generally the state will deduct around 3.6 percent of your annual pension for each extra year or retirement you take, so retiring two years early will result in a 7.2 percent reduction. 

READ ALSO: Why poverty among pensioners continues to rise in Germany

What kind of change do people want to see?

At the moment there's a fair amount of disagreement about how to proceed. 

In the past weeks, there are have been repeated calls from economists and employers to increase retirement age even further. "We need a higher retirement age," economic advisor Martin Werding recently told the Süddeutsche Zeitung, adding that the age at which people take their pension should be linked to longer life expectancy.

"The retirement age should rise to 68 by 2042/43 and to 69 by 2054/55," he explained. 

Meanwhile, politicians from the liberal FDP have been lobbying for a Swedish-style system, where the official pension age has been scrapped entirely. Instead, people can choose when they go into retirement and their pensions are lowered or increased accordingly.

"The country that is most successful here in Europe is Sweden with its flexible retirement age model," FDP vice president Johannes Vogel told DPA. "I am convinced that no one needs to tell people when to retire anymore, because life paths are becoming more and more diverse."

FDP vice president Johannes Vogel speaks in the Bundestag

FDP vice president Johannes Vogel speaks in the Bundestag. Photo: picture alliance/dpa | Michael Kappeler

But Labour Minister Hubertus Heil (SPD) has spoken out categorically against tampering with the retirement age. 

"Raising the retirement age even further to 69, 70 or 75 is wrong and unfair, because that would mean a real pension cut for many people who simply cannot work that long," the SPD politician told the Rheinische Post on Thursday. 

Heil said that the pension age of 67 was already high in comparison with other countries, and that setting it higher would burden the younger generation. "That's not what I want, and it's what the traffic light party ruled out in the coalition agreement," he said.

Instead, he said, the government want to continue to focus on increasing the number of domestic and international workers so that more people pay into the pension pot. 

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Has the government set out concrete plans? 

So far, we know that a combination of higher workforce immigration and state-organised investment in equity funds will be used to prop up the pension pot. 

But more detailed plans are expected to be laid out by Heil in his forthcoming 'Pension Package II'. 

This should set the course for stabilising pensions long-term, even as more of the baby boomer generation enter retirement. 

READ ALSO: Pensions in Germany: How the new government plans to solve an age-old issue

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