Retirement Age Don't Go Just Yet

Germany is suffering from record labor shortages, but new pension laws have seen half a million skilled workers take early retirement since 2014.
Labor minister sends mixed signals on seniors' employment. Picture source: DPA

Early this year, German Labor Minister Andrea Nahles put the country’s skilled-labor shortage at the top of her agenda. “Companies are thinking about how they can keep skilled older workers for longer. They want them to work longer,” she said in a television interview. “That’s what’s crucial in Germany now.”

But the minister’s statement oddly contradicts her existing policies. Ms. Nahles was the driving force behind a new early retirement scheme, introduced by the government in July 2014. It is thought the minister did not personally favor the measure, but succumbed to pressure from her party, the center-left Social Democrats. Since then, German workers with 45 years of public pension contributions can retire at 63 with no loss of benefits. The current standard retirement age is 65.

At the time, critics suggested the new policy could bleed industry of skilled workers. And it seems exactly that has happened. In a written answer to a parliamentary question from the opposition Green party, seen by Handelsblatt, the labor ministry confirmed that in the second half of 2014, 136,000 people took advantage of the new retirement option. In 2015, the figure was 274,000 – a staggering number at a time when the country is suffering from acute shortages of skilled labor.

Without experienced and capable older workers, we simply cannot fill the growing labor gap. Brigitte Pothmer, labor market spokesperson, Green Party

Final figures for 2016 are not yet available, but it seems certain the trend will continue – last year saw 241,000 applications submitted for early retirement. In total, more than half a million employees will have retired early in just three years. There seems little doubt that the new scheme is driving the increase: the two years before the reform was implemented, 2012 and 2013, saw just 12,000 and 16,000 retirements at age 63. Until the reform, a pension penalty of 3.6 percent per year applied to early retirement.

The ministry has no figures on these workers’ qualifications, nor on which industries they are retiring from. But research published last year by the Federal Employment Agency suggests skilled staff were disproportionately represented. Ms. Nahles was sharply criticized by the Green party on the issue: “The labor minister has done a great disservice to retaining skilled personnel,” said their labor market spokeswomen, Brigitte Pothmer. Fears that early retirement would exacerbate the labor crisis had been proved right, she added.

As well as a very tight labor market, Germany suffers from an aging population, and pension reform is certain to be a key issue in the upcoming federal elections. The Social Democrats, or SPD, favor a complex set of subsidies to guarantee living standards for retirees, while their current coalition partners, Angela Merkel’s Christian Democrats, or CDU, want to continue to gradually increase the retirement age.

According to the most recent survey by the Institute for Employment Research, German companies had a total of 1.1 million unfilled positions in the first quarter of this year. This represents an all-time record, an increase of 75,000 in last year’s equivalent total. Around 80 percent of these jobs require some kind of qualification, almost two-thirds require a professional qualification, while 16 percent ask for a university education. The chances of filling these jobs from the current pool of unemployed are low and falling. In late 2010, there were an average of 3.7 applicants for every vacancy, but that figure has now fallen to just 2.6

The early retirement program has hit sectors relying on workers qualified in science, technology, engineering and math, the so-called STEM professions, particularly hard. In the six quarters before the introduction of the new rules, full-time STEM employment among 61–65 year olds grew steadily, according to a new report on the topic from the Cologne Institute for Economic Research, or IW.

However, between the second and third quarters of 2014 – when the retirement measure went into effect – there was a “veritable collapse in employment trends,” the report said. If the measure had not been passed, it claims, there would be around 13,500 more STEM-qualified employees in the economy. The current shortage is estimated at 238,000 STEM staff in the country as a whole.

The significance of the retirement wave is highlighted by immigration figures. Between 2010 and 2014, before the 2015 influx of refugees, Germany saw net average inward migration of around 374,000. But the benefits of this increase have been substantially offset by early retirees.

People should work until they are 67. Older people can’t refuse to roll up their sleeves, qualify and look for a new job. Andrea Nahles, German labor minister

Early retirement had been declining for decades before the 2014 measures, said Ms. Pothmer of the Green party. For the IW’s Jochen Pimpertz, the current SPD-CDU coalition government gave a clear signal to older workers to go ahead and retire. Before 2014, their consistent message had been to “work longer.” This had clear results – in 2013, fewer than 20 percent of retirees were 63 years old, but in 2015, that figure rose to 33.4 percent, said Mr. Pimpertz. Politicians made early retirement a respectable move, he added. “Without experienced and capable older workers, we simply cannot fill the growing labor gap,” was Mr. Pothmer’s verdict.

The gradual increase in the general retirement age is counteracting the trend to some degree. Since 2015, the state retirement age has risen two months every year. For those born after 1964, the age limit is now 67, with early retirement kicking in at 65, provided retirees have made full contributions. The future age to retire early may have been slightly increased, but it seems the incentives will remain.

Given these clear trends, Ms. Nahles is seeking other ways to shore up the supply of skilled labor. In the same television interview, the minister pushed for older unemployed people to retrain and requalify. “People should work until they are 67. Older people can’t refuse to roll up their sleeves, qualify and look for a new job,” she said. “We need everyone. That’s the overall message.”

In preparation for the election, she has prepared a proposal to extend full unemployment benefits for older people who requalify. Her idea has been criticized by the BDA, the country’s main employers’ organization: “This regressive proposal will not prepare people for work. It simply puts people on a waiting list for early retirement,” said the BDA director general, Steffen Kampeter.

Peter Thelen writes about social security systems, the job market and labor topics. Frank Specht is based at Handelsblatt's Berlin bureau, where he focuses on the German labor market and trade unions. To contact the authors: [email protected], [email protected]