Reduced Discounts for Early Retirement Offered by Bundesbank Insufficient
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The Bundesbank has a bone to pick with the federal government's proposals for an "active pension." In their June monthly report, the Bundesbank thinks the government's plans aren't potent enough to make a significant impact. To prolong working lives, they suggest linking the statutory retirement age (post-2031) and the earliest possible retirement age to life expectancy, and eliminating early retirement without deductions.
The Union and SPD coalition agreement states that employees can retire early after 45 years of work, and the retirement age of 67 won't escalate further. The coalition aims to keep older folks in the workforce as long as possible too. An "active pension" is intended to assist those who work beyond retirement age but earn less than €2,000 per month—they'll receive their income tax-free.
However, the Bundesbank contends that financial motives don't primarily drive senior employees to remain employed, as per surveys. Instead, they find pleasure in their work or social interactions are of primary importance. Thus, they believe financial incentives may have unexpected benefits. This means that workers who would've continued working anyway will benefit from the incentives, but the pension system as a whole won't be enormously relieved.
Penalties for Early Retirement: Too Low, Too High!
The Bundesbank also thinks the existing penalties for early retirement are unfairly low and calls for a reevaluation. The 0.3% monthly penalties make early retirement overly attractive for insured individuals and cause financial burdens for the statutory pension insurance.
Conversely, the 0.5% monthly supplements for those starting their pension later are considered too high based on calculations. According to the current legal provisions, penalties and supplements are independent of the exact retirement date.
Graduated Penalties: A Fairer Solution
The Bundesbank argues that graduated penalties and supplements depending on the distance from the statutory retirement age would be more appropriate, ensuring neutrality. While fixed percentages are easier to comprehend, they don't account systematically for the impact of the retirement start date.
For instance, a person born in 1964, if they retire between 63 and 64 years, would face a 0.37% monthly penalty. For a retirement start between 66 and 67, a 0.42% monthly penalty would apply.
Additionally, the Bundesbank advocates for periodic reviews and potential adjustments of penalties and supplements for cohorts approaching retirement. This could occur every five years or when new population forecasts from the Federal Statistical Office are available.
- The Bundesbank's analysis of employee behavior suggests that pleasure in work and social interactions, rather than financial motives, are the primary reasons for senior employees to remain in the workforce, indicating a potential role for business and general-news media to explore the impact of work satisfaction on retirement decisions in the realm of politics and finance.
- Contending that the existing penalties for early retirement are not systematically fair, the Bundesbank proposes the implementation of graduated penalties and supplements, depending on the distance from the statutory retirement age, as a means to financially motivate individuals to work longer, and to ensure neutrality in the pension system, aligning with wider discussions in business, general-news, and political arenas.
