It was a great day for German employees: after lengthy discussions in Germany's grand coalition and harsh criticism from the business sector, an agreement was reached on the controversial pension reform. The reform will be voted on in the Parliament of the Federal Republic of Germany (Bundestag) on Friday. The new "pension package" will then come into force on July 1, 2014. Economists and employers are already rebelling, however.
Details on what the German pension package contains:
Lower retirement age for employees who have paid into the system for many years
As of July 1, 2014, employees who have paid into the retirement system for 45 years can go into retirement when they reach the age of 63 without deductions from their retirement benefits. Currently, employees insured under the state retirement system have to accept deductions from their pensions at a rate of 0.3 percent for each month that they retire before reaching the statutory retirement age. The conditions for entitlement are also to be improved: short-term interruptions of payment into the system owing to unemployment and periods during which employees nurse family members and raise children are counted. The option to retire at 63 without deductions is supposed to reward the people whose lifelong work supports the retirement system. According to the grand coalition, people who have worked for 45 years are entitled to the recognition of their lifelong work.
And those who want to continue to work after the age of 63? "Flexi-retirement" makes it possible
Employees who want to (or must) continue to work after they have reached the age of 63 should be enabled to do so, according to the agreement reached by the government: they can postpone retirement in mutual agreement with their employers. If this so-called "flexi-retirement" is agreed on, the employers must continue to pay into the retirement and unemployment systems.
"I'm off then!" Most Germans want to retire at 63
Current surveys show that two thirds of the German people would like to retire at 63 at the latest. Thirty-nine percent can imagine retiring between the ages of 60 and 63. Twenty-seven percent would be happy to stop working at 59. Only every 50th (two percent) would still like to be working when they are older than 65. A general retirement age of 67 would thus not find much favor.
Industry representatives raise the alarm
Meanwhile, employer and industry representatives do not believe that the retirement package, which will cost €160 billion, can be financed. This would be spending the money paid into the retirement system by industry and employees hand over fist. The package as a whole would lead to an increase in payment rates and a decrease in pensions. In addition, retirement at 63 would cause the loss of valuable skilled employees who could have worked longer provided that their mental and physical condition is good. The introduction of the lower retirement age would aggravate the lack of skilled employees in business establishments.
Good news for mothers: credit for time spent raising children
The pension for mothers is recognition for the services they rendered to the state in raising their children. Women and men who raised children before 1992 did not have the childcare options and thus the opportunities to be employed that parents have today. Many of them interrupted or completely gave up their jobs to raise their children. The services they rendered in caring for their children are supposed to be honored to a greater measure than they have been to date. Their monthly pensions are thus to be increased by €28.61 (western Germany) per child and by €26.39 (eastern Germany). All parents are to receive the mothers' pension. The pension is thus to be paid regardless of whether mothers or fathers actually cared for the children fulltime or had jobs at the same time. Approximately 9.5 million women (and also a few men) Germany-wide will profit from the new mothers' pension. The higher mothers' pension will cost an additional €6.7 billion for one year. This will be paid mainly out of the retirement system (money paid into the retirement system), rather than out of tax money.