Retrenchment of Early Retirement Options in Germany

While overall generosity has thus declined noticeably since 1980, the most consequential development in German retirement policy has arguably been the retrenchment of early retirement options that were introduced after the economic crises of the 1970s. The nominal full retirement age in Germany was 65 for persons born before 1947, but workers could claim benefits substantially earlier without incurring any benefit reductions if they qualified for one of several group-specific pensions. The four major options were the old-age pension (OAP) after long-term unemployment and old-age part-time work, the OAP for women, the OAP for the long-term insured and the OAP for severely disabled persons. A concise summary of early retirement options is complicated by their group-specific nature. Generally speaking, most men qualified for reduction-free retirement at age 63 (via the so-called Old Age Pension for the Long-term Insured), while most women could retire as early as age 60 (via the Old Age Pension for Women).4 The important (and infamous) unemployment pathway facilitated even earlier retirement: unemployed people aged 58 and older were relieved of job search and work availability requirements if they agreed to claim a deduction-free pension at the earliest possible age. Workers could thus effectively retire at 58 (or even somewhat earlier) and then draw first-tier unemployment benefits (for a maximum of 32 months) until becoming eligible for the old-age pension for the long-term unemployed at age 60 (Ebbinghaus 2006).

The 1992 pension reform (named after the year when its first regulations took effect) substantially raised the costs of early retirement: ages for reduction-free pension take-up were raised for all group-specific early retirement options. For the cohorts examined in this study, early retirement at the former age thresholds remained possible but became subject to benefit reductions of 3 per cent per month. Increases in the ages for reduction-free take-up were phased in gradually, usually in steps of one month per month of birth, and the precise timing differed across the different types of early pensions. Broadly speaking, the first cohorts affected became eligible for early benefit take-up in the late 1990s (see Heisig

2015, 53-113). In addition to this retrenchment of early retirement options proper, public disability and unemployment benefits were fundamentally overhauled in 2000/2001 and 2004/2005, respectively. In both cases, benefit generosity was reduced and eligibility criteria were tightened (for disability benefits, see Viebrok 2003; for unemployment benefits and activation policies more generally, see Alber and Heisig 2011).

Germany thus epitomizes the broader OECD-wide trend toward making early retirement more costly. Early retirement options were scaled back starting in the late-1990s, and complementary welfare state programmes were reformed as well. These changes occurred in a labour market where early retirement had long been the norm, where an emphasis on specific skills and occupational credentials creates marked labour market boundaries (DiPrete et al. 1997), where employment protection legislation is relatively strict (Giesecke 2006) and where continuing training participation is low, especially among older workers (Eichhorst 2011). All of these factors arguably depress the (re)employment prospects of older workers, so older workers may find it particularly difficult to conform to the new paradigm of late retirement. This situation suggests that recent reforms may have amplified inequalities between workers whose late careers run smoothly and involuntary retirees who, due to job loss, health problems or other shocks, retire earlier than planned.

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