Early pension reductions set by the Bundesbank lack sufficient intensity, according to German central bank's remarks. - Discounted Early Retirement Rates Set Too Low by Bundesbank (Revised Version)
The Bundesbank isn't satisfied with the federal government's plans for an "active pension" - they deem it inadequate. Suggesting longer working lives, the Bundesbank maintains that it's vital to tie the statutory retirement age, beyond 2031, and the age limit for early retirement to life expectancy and phase out early retirement without deductions.
The current coalition agreement between the Union and SPD allows employees to retire early, after 45 years of work, while the retirement age remains at 67. However, the coalition intends to encourage older people to remain professionally active by introducing an "active pension." Those at the statutory retirement age who choose to continue working voluntarily will receive their salary tax-free up to 2,000 euros per month.
According to the Bundesbank, financial incentives might lead to free-riding effects, as stated in their June monthly report. Working for pleasure or camaraderie appears more decisive than financial gains in numerous surveys among those in higher age groups who still work.
Besides criticizing the insufficient financial incentives for delayed retirement, the Bundesbank also finds the current deductions for early retirement too low and advocates for a review and subsequent adjustments. The existing 0.3% deduction per month lures individuals into opting for an early retirement and places undue financial burdens on the statutory pension insurance.
Moreover, the Bundesbank considers the current 0.5% supplements for retirees who defer their pension larger than necessary. Under the current legislation, deductions and supplements are unrelated to the retirement date.
To address these issues, the Bundesbank proposes graduated deductions and supplements based on the distance to the statutory retirement age. For instance, someone born in 1964 would face a deduction of 0.37% per month between 63 and 64 and a deduction of 0.42% per month between 66 and 67.
Additionally, the Bundesbank advocates for regular assessments and, if required, modifications of these deductions and supplements for cohorts close to retirement every five years or when new demographic forecasts from the Federal Statistical Office become available.
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German Federal Bank, Bundesbank Reform Proposal, Early Retirement, Active Retirement, Federal Government, Coalition Agreement, Social Democratic Party (SPD)
The German Federal Bank, Bundesbank, has expressed dissatisfaction with the federal government's active pension plan, suggesting it as insufficient. They propose graduated deductions and supplements based on the distance to the statutory retirement age, and regular reviews and modifications every five years, to address the current inadequate financial incentives for delayed retirement and low deductions for early retirement.
In addition to this critique, the Bundesbank also finds the current 0.5% supplements for retirees who defer their pension larger than necessary, proposing a vocational training and general-news initiative to encourage older people to remain actively involved in the business, politics, and community spheres, which could help tackle the issue of early retirement and the potential free-riding effects due to insufficient financial incentives.
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