Retirement at 70: A Rediscovered Age, but Should We Embrace It? A look back at Germany's history and its implications for the future.
- By Daniel Bakir
- 2 Min
Retirement Pensions at Age 70 Resurfaces: Anticipated Rollout Approaching? - Will the retirement pension at 70 make a comeback shortly?
Dive into the annals of history, and you'll stumble upon: The retirement age of 70, a specter that once haunted Germany. It was none other than Reich Chancellor Otto von Bismarck who ushered in the compulsory pension insurance towards the tail end of the 19th century, with the retirement age standing steadfastly at 70 years. Back then, the retirement age of 70 was a monumental societal and political triumph.
In those early days, the pension benefits were meager, and many fell short of reaching the venerable age of 70. Despite the less-than-lavish payout, the "Law regarding Invalidity and Old-Age Insurance" of 1889 marked the third fundamental social law in the German Empire, following closely on the heels of the establishment of accident insurance and statutory health insurance a few years prior. It laid the foundation for the pension system as we know it today.
Now, the retirement age of 70 has morphed into a bogeyman, as few are eager to labor that long. The legislation, however, allows individuals to retire as early as 67. Some may even call it quits earlier, with a pension at 63 feasible in certain situations. At present, no one is held back from retiring at 70 unless they wish to bolster their pension with additional income. Yet, discussions have been swirling for years regarding a potential elevation in the retirement age.
Pension at 70: Who Stays in the Game till the Whistle?
At this moment, the retirement age increases by one or two months per cohort that retires. When the birth cohort of 1964 retires in the year 2031, the retirement age will be fully adjusted to 67 - a consequence of the decision made by the legislator in the "RV-Altersgrenzenanpassungsgesetz" of 2007.
The reason behind the decision to raise the retirement age to 67 stems from the looming demographic challenges that threaten the pension fund in two ways. In the first instance, through the escalating life expectancy resulting in longer pension entitlement periods. In the second instance, by the impending retirement of exceptionally large birth cohorts, both of which put the pension system under immense pressure due to a decrease in contributors relative to pension beneficiaries.
The aforementioned financing issues are alleviated but not completely resolved by the retirement age of 67. As the number of contributors continues to dwindle in the coming years, the pension system will still face difficulties. At present, the pension is not solely financed through contributions but rather relies on a substantial portion from the federal budget, or in other words, tax revenues.
Some experts propose a solution in a further increase in the retirement age, such as to 69 or even 70 years. Prominent economists have long advocated for this notion, and it is also under discussion in political circles. Conversely, the idea also elicits vehement opposition, particularly from the trade unions. The German Trade Union Confederation maintains that the retirement age of 70 is unrealistic since many individuals, especially those in physically and mentally demanding professions, cannot continue working for that long.
A rigid increase in the retirement age is not inevitable. Other means to ease the burden on the pension fund exist, but each comes with its own challenges. Unpopular alternatives would include a reduction in pension levels or cuts to early retirement. A simple solution would be to allocate more tax subsidies, but the money would vanish elsewhere. Only recently has the concept of a state-owned equity pension garnered support, which means a portion of the contributions would be invested in the capital market, but the benefits would not be realized immediately.
- Retirement age
- Pension system
- Pension fund
- Otto von Bismarck
Additional Facts:
The pension at 70 was initially introduced by Chancellor Otto von Bismarck in 1889 when the average life expectancy was approximately 45-50 years[1]. The retirement age was reduced to 65 in 1916 to increase eligibility. Compared to the 1970s and 1980s, when pension replacement rates were nearly 60%, they dropped below 50% since 2011[2]. Despite this, retirees' median wealth stands at over 200,000 euros for those aged 55-64[2]. Currently, 40% of early retirees express interest in continuing to work, and 20% of individuals aged 70-75 are willing to do so if granted the opportunity[3]. Discussions have focused on flexibility rather than rigid age increases, with proposals suggesting the possibility of earning up to one's last gross salary without pension penalties for individuals as early as 63, and a gradual increase in the statutory retirement age to 68-70 being considered[1][2].
- Otto von Bismarck, in 1889, established the retirement age of 70 in Germany, which was a significant milestone in the history of the country's social welfare system.
- The pension system in Germany was strengthened by the Law regarding Invalidity and Old-Age Insurance of 1889, one of the fundamental social laws in the German Empire, offering vocational training opportunities for the workforce.
- At present, while the retirement age is 67 and can be lower in certain cases, discussions are ongoing about potentially increasing it to ease the financial pressure on the pension fund, as large birth cohorts reach retirement age and life expectancy continues to increase.
- The prospect of a retirement age of 70 receives diverse reactions – while some propose it as a solution to the pension system's challenges, others oppose it, stating that physically and mentally demanding jobs may render some individuals unable to continue working past that age.
