Bundesbank Raising Alarms Over Inadequate 'Active Pension' Plans 🧐
Reduced Pension Age Adjustments Implemented Prematurely – According to Bundesbank - Reduced Discounts for Early Retirement, According to Bundesbank, Insufficient
They say variety is the spice of life, and it seems the German Bundesbank disagrees when it comes to the federal government's pension plans. The central bank feels that the proposed "active pension" initiative won't be as impactful as intended. 📝
According to the Bundesbank's June monthly report, to extend working lives, it's essential to link the retirement age and the age limit for early pension withdrawal to life expectancy, and terminate early retirement without deductions altogether. 🚶♂️
The coalition between the Union and SPD has agreed to let employees retire early after 45 years of professional activity, and there's no intention to raise the retirement age beyond 67. However, the coalition aims to persuade older workers to stay in the workforce as long as possible. An "active pension" was designed to help: those who reach the statutory retirement age and voluntarily continue working can earn tax-free income up to €2,000 per month. 💰
But, the Bundesbank argues financial incentives may have undesirable side effects, like people taking advantage of the benefits while not significantly decreasing the burden on the pension system. Instead, the bank suggests that enjoyment of work and social factors are the primary reasons why older workers remain employed. 🤝
The Bundesbank is also not impressed with the current deductions for early retirement, which it considers too low, causing financial stress for statutory pension insurance. 🚫On the flip side, the supplements for those who postpone retirement are deemed too high. The bank suggests adjusting both deductions and supplements based on the distance to the statutory retirement age to make them neutral. ➡️
To achieve this, the Bundesbank proposes graduated monthly deductions and supplements based on the distance of the actual retirement age from the statutory retirement age. For instance, if someone is born in 1964 and retires between ages 63 and 64, the deduction would be 0.37%, while a retirement between the ages of 66 and 67 would result in a 0.42% monthly deduction. 📊
Moreover, the bank argues for routine reviews and adjustments of the deductions and supplements for cohorts close to retirement, such as every 5 years or when new population projections from the Federal Statistical Office become available. 🚀
So, keep a watchful eye on those pension policies. The Bundesbank isn't backing down on its push for profound changes in Germany's early pension strategies. 🇩🇪📈
- The Bundesbank, in its June monthly report, advocate for revisions in the current 'active pension' policy, suggesting adjustments to financial incentives for early retirement and postponing retirement, aiming to make them neutral and based on the distance to the statutory retirement age.
- Besides the 'active pension' policy, the Bundesbank encourages advocating for vocational training programs to motivate older workers to remain employed, emphasizing that financial incentives may not be the primary reason for job continuity in later life, but rather enjoyment of work and social factors.
