Ampel introduces delayed pension contribution plan
In an effort to spur growth, the government has agreed on a pension deferral incentive. This incentive aims to address the shortage of skilled workers by encouraging individuals to continue working past retirement age. However, the ruling coalition is encountering IT challenges during the implementation of this initiative.
The government has proposed a new bonus for retirees who decide to continue working. Currently, retirees can enhance their future pension payouts by working beyond the standard retirement age. In the future, retirees will also have the option to receive these benefits as a lump sum, known as a pension deferral incentive. This initiative is part of the "growth initiative" agreed upon by the coalition and must now be approved by the parliament.
The incentive is tax-exempt and is determined by the amount of missed pension income and the health insurance savings accumulated by the pension fund during the period of continued employment. According to estimates by the social group VdK, an individual who has reached a pension claim of around €1,600 gross by the time they reach retirement age and then works for a year at the average wage could receive a tax-free payment of around €22,000.
Those looking to benefit from this incentive will have to be patient, as the new regulation is set to take effect on January 1, 2028, to allow the pension insurance to prepare for it technologically and organizationally. "However, employment periods from January 1, 2025 can already be considered for the pension deferral incentive," Heil notes in a cover letter to the cabinet proposal. The Federal Ministry of Labor is also examining with the pension insurance whether and how an alternative payment method to the pension deferral incentive can be offered in cases where employment ends before December 31, 2027.
In addition to this one-time payment, retirees will still have the option to increase their monthly pension by continuing to work. Delaying retirement by one year increases the old-age pension by six percent. Furthermore, this increase is due to continued contributions to the pension fund. According to a recent survey by Xing, more than half of individuals aged 50 and over can envision working beyond retirement age.
Employers can directly pay social security contributions
Another new regulation proposed by the government allows employers to pay the contributions they make for retirees directly to the retirees. The purpose of this regulation is to increase their income and incentivize them to stay in their jobs longer. If employers fail to pay the contributions to the retirees, they must continue to pay the employer contributions to the unemployment and pension insurance funds.
"Those who wish to voluntarily contribute their knowledge and skills beyond retirement age will benefit from the new regulations. This is an important step in ensuring experienced skilled workers for our economy," stated Federal Minister of Labor Hubertus Heil of the SPD. His cabinet colleague, Federal Minister of Economics Robert Habeck of the Greens, added: "The measures adopted are crucial for Germany's economic development due to demographic changes, as we cannot afford to do without the knowledge, skills, and experience of those who still wish to work."
Changes to fixed-term contracts and survivor's benefits
The legislative proposal also includes changes to fixed-term contracts and survivor's benefits for individuals who wish to continue working beyond retirement age. These changes aim to make it easier for individuals to extend their employment and work while receiving a survivor's benefit, such as a widow's or widower's pension. According to the Federal Ministry of Labor, full-time employment at the statutory minimum wage while receiving a survivor's benefit will not result in a deduction from their pension. According to the German Trade Union Confederation, the gross monthly earnings for a 40-hour week at the minimum wage are approximately €2,150.
Retirees who choose to continue working past retirement age will now have the opportunity to receive an additional tax-exempt payment, called a pension deferral incentive. This incentive is part of the government's efforts to address the shortage of skilled workers and is expected to take effect on January 1, 2028.
The new regulations also allow employers to directly pay social security contributions to retirees, providing them with an increased income and encouraging them to continue working. This initiative, along with the pension deferral incentive, aims to retain experienced skilled workers in the workforce.
