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Jochen Pimpertz IW-Trends No. 4 2. January 2023 „Actuarially Fair” Reductions in Early Retirees’ Pension Benefits: A Systematic Study of Neutrality in Pension Financing and in the Burdens and Incentives for Members of the Statutory Pension Scheme

Calls for the reduction in state pension benefits for early retirees to reflect real insurance risks imply that early retirement need not involve any additional costs.

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A Systematic Study of Neutrality in Pension Financing and in the Burdens and Incentives for Members of the Statutory Pension Scheme
Jochen Pimpertz IW-Trends No. 4 2. January 2023

„Actuarially Fair” Reductions in Early Retirees’ Pension Benefits: A Systematic Study of Neutrality in Pension Financing and in the Burdens and Incentives for Members of the Statutory Pension Scheme

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German Economic Institute (IW) German Economic Institute (IW)

Calls for the reduction in state pension benefits for early retirees to reflect real insurance risks imply that early retirement need not involve any additional costs.

However, the statutory old age pension for men would have to be lowered by up to 1.6 additional percentage points – depending on the retirement date – to avoid burdening the expenditure side of Germany’s statutory pension scheme. Yet even such a cut would not prevent the permanent burdening of present contributors to the pay as-you-go scheme, because early retirement would mean more pensioners being supported by fewer contributors. Up to now, policymakers have worked on the (fictitious) basis that the state pension was a full replacement for the income previously earned, and additional earnings were therefore penalized. From 2023, however, the full old-age pension can be drawn unaffected by ongoing income from gainful employment. Thus early retirees, too, will be able to earn unlimited additional income without affecting their pensions, and this will more than compensate for what they lose as a result of their reduced pension entitlement. The federal government should therefore waste no time in assessing the likely extent of premature pension claims in the future in order to prevent early retirees enjoying a longer working life at the expense of contributors.

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A Systematic Study of Neutrality in Pension Financing and in the Burdens and Incentives for Members of the Statutory Pension Scheme
Jochen Pimpertz IW-Trends No. 4 2. January 2023

„Actuarially Fair” Reductions in Early Retirees’ Pension Benefits: A Systematic Study of Neutrality in Pension Financing and in the Burdens and Incentives for Members of the Statutory Pension Scheme

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German Economic Institute (IW) German Economic Institute (IW)

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Asset accumulation for retirement provision
Michael Hüther / Jochen Pimpertz IW-Policy Paper No. 6 6. October 2022

Asset accumulation for retirement provision

The pay-as-you-go statutory pension insurance is intended to protect workers in Germany from having to rely on tax-financed assistance in old age. However, due to the ageing of society the security level of the statutory pension insurance must decrease.

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Florian Blank / Johannes Geyer, Peter Haan, Maximilian Schaller / Jochen Pimpertz / Reinhold Thiede / Martin Werding IW-Trends No. 2 6. July 2022

Should the State Pension Scheme Take Different Socio-demographic Backgrounds into Account?

While German law stipulates a standard retirement age for all members of the public pension scheme, empirical studies have shown that life expectancy is unevenly distributed within the population, varying according to income level, professional status, ...

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