It's Time to Revamp Retirement: Bundesbank Suggests Graduated Discounts and End to Early Retirement Perks
Federal Reserve demands the reversal of the pension's nondeductible progression
Gotta love that "retirement at 63," huh? You can retire early with minimal or no discounts, but the Bundesbank ain't buying it. They're not happy with the government's plans and believe it's time for a change.
According to an expert article in the Bundesbank's June Monthly Report, the government's "active pension" idea falls short. The Bundesbank thinks it's crucial to link the statutory retirement age and the earliest possible retirement age to life expectancy and to nix early retirement without discounts.
To remind you, the coalition agreement lets folks retire early after 45 years of work, and the retirement age of 67 ain't going up any further. But hey, the coalition wants people to work longer, and an "active pension" should help: Those who choose to work past the statutory retirement age will receive tax-free income up to €2,000 per month.
However, the Bundesbank thinks most folks keep working past 63 for reasons other than financial incentives—enjoyment of work or social aspects, for instance. So, they say these incentives could lead to "free-riding effects," which means the pension system as a whole won't be relieved.
Bundesbank Wants Recalculation of Discounts and Supplements
The Bundesbank also finds the current discounts for early retirement a tad too low and calls for a recalculation. Guess what? Those 0.3% monthly discounts make early retirement look real attractive and put a strain on the statutory pension insurance.
On the flip side, the 0.5% monthly supplements for those who wait to retire later are currently just a tad too high, according to the Bundesbank.
Proposal for Graduated Discounts
The Bundesbank thinks it’s time to graduate discounts and supplements based on the distance from the statutory retirement age to make them neutral. They argue that fixed percentages are easier to communicate but don’t address the impact of retirement timing.
For instance, a person born in 1964 would have a 0.37% monthly discount between the ages of 63 and 64. But for someone who retires between 66 and 67, the monthly discount would be 0.42%.
The Bundesbank also suggests reviewing and adjusting the deductions and supplements every five years or when new population projections from the Federal Statistical Office are available for the generations close to retirement.
Sources: ntv.de, good/dpa
- Pension
- Germany
- Economy
- Central Bank
- Pension Policy
- The Bundesbank, in its June Monthly Report, proposes a revision in the employment policy, suggesting graduated discounts and an end to early retirement perks as part of the pension policy, aiming to link statutory retirement age and the earliest possible retirement age to life expectancy.
- Recognizing the impact of retirement timing on the pension system, the Bundesbank also suggests recalculating both the current low discounts for early retirement and the high supplements for late retirement in the employment policy, with the aim of making them neutral and reviewing them every five years.
