Employment Policies for the 50+: Germany (2016)

Introduction

The recent employment policies for the population 50+ in Germany are strongly linked to the pension system and its recent reforms.

Participation in the German statutory pension scheme is compulsory for the employed population. Contributions are paid to the statutory pension insurance. The statutory pension insurance provides old-age pensions, disability pensions, and survivors' pensions (Börsch-Supan & Wilke 2003). The contributions paid into the scheme determine the level of the pension received when entering retirement. The German statutory pension scheme was characterised by a very generous pay-as-you-go paradigm with early effective retirement ages and high replacement rates, as set in the reforms in 1972 (ibid.). Consequently, the statutory pension system became very costly, accounting for around 20 % of public spending (OECD 2001). Projections illustrate that the pure pay-as-you-go system is not sustainable, as the population is ageing and fewer workers will have to finance the benefits of more recipients over the next decades (Börsch-Supan & Wilke 2003). The share of people aged over 65 will exceed a quarter of the population in 2030 (OECD 2001). With a series of reforms in 1992, 2001, and 2011, adjustments to the German statutory pension system were carried out, targeting early retirement ages, cuts in replacement rates, and the implementation of a multi-pillar pension system, among other areas (Börsch-Supan & Wilke 2003). Most recently, a gradual increase of the retirement age from 65 to 67 over the next decades became effective.

In light of these trends, employment of the generation 50+ gained importance in recent debates. Increasing the labour force through the employment of older workers could help to reduce the burden of an ageing population, as a larger labour force could enhance welfare revenues.

Activation policies

In 2006, the employment rate of older people aged 55 and over was roughly 45 % in Germany (OECD 2006). As the employment of this share of the population became significant in order to address demographic changes, the government introduced several measures in order to promote the employment of those aged 50+.

Recent pension reforms such as the increase of the retirement age to 67 and cuts in benefits for early retirement indirectly encourage those 50+ to participate in the labour market for a longer period of time. Additionally, several publicly-funded national programmes were introduced in order to establish jobs for unemployed older people.

The most prominent measure in recent years in this area is the “Initiative 50Plus” programme of the German Federal Ministry of Labour and Social Affairs. The programme aims to re-integrate older unemployed people into the labour market. It targets unemployed men and women between 50 and 64 years of age. The implementation of the national programme is carried out regionally and there are about 77 employment pacts specialised in different regions and work fields (OECD 2006).

At its core, the “Initiative-50Plus” led to five important regulative changes (BMAS 2006):

First, a combination wage scheme for the elderly short-term unemployed was introduced, with the objective to encourage older unemployed people to restart employment quickly. If the new employment pays a lower wage than the previous occupation, the government funds salary compensation for up to two years (by 50 % for the first and 30 % in the second year). Then, an integration subsidy was established targeting workers aged 50 and over. Hiring subsidies directed at employers disburse up to 50 % of the standardised labour costs for up to three years. Further, the funds for continuing training for the elderly were expanded. Job holders aged 45 and over may receive continuing vocational training grants and unemployed elderly people are entitled to education vouchers. To further encourage enterprises to employ older people, employment under fixed-term contracts was facilitated for people aged 52 and over. In contrast to other fixed-term contracts, the employer does not have to present an objective reason for the limitation of the duration of employment. As a further measure, the federal programme “30,000 Additional Jobs for Those over 58” created work opportunities with additional expense compensation for the elderly unemployed.

Early retirement policies

In Germany, the statutory retirement age for men and women is currently 65 and will be gradually increased to 67 within the next decades. However, only 20 % of all entrants use the pathway to an old-age pension at the age of 65 (Börsch-Supan & Jürges 2007). The majority of Germans retire much earlier, using early retirement options. The legislative framework of early retirement goes back to the reforms of 1972, when strict regulations on retirement at the age of 65 were loosened and several early retirement options without actuarial adjustments in benefits were introduced (ibid.). The introduction of early retirement options had a severe impact on the retirement age over the following decades. In 2002, for example, the average effective retirement age was 60 (Börsch-Supan & Wilke 2003).

There are different reasons for the high number of early retirements. Early retirement can take place voluntarily or involuntarily. To a certain extent, it is affected by the labour market, employers, and employment opportunities for the older generation. Furthermore, the financial benefits of an early retirement, compared to a standard retirement at the age of 65, affect an individual’s decision to retire early. 

Due to demographic change and increases in pension expenses, reforms since 1992 have targeted mechanisms rewarding early retirement in particular. Among others, retirement age-specific adjustment factors of benefits were introduced (Börsch-Supan & Jürges 2007) to neutralise incentives for early retirement. Changes in employment policies for the generation 50+ also aim to counteract early retirement.

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