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Germans retiring later in life

Germans are retiring later in life, according to a government-commissioned study that could bolster calls to raise the pension age.

Published: 8 September 2010 09:04 CEST

Germans retiring later in life

Photo: DPA

Daily Süddeutsche Zeitung reported Wednesday that the study, “German Age Survey” concluded that between 2002 and 2008, the average retirement age rose from 62 to 63.

One third of people aged more than 60 are now working. And those that do retire increasingly want to use their time to do volunteer work, the study found.

The study comes amid a debate over how and when to raise the pension age from 65 to 67 to offset Germany’s ageing population, which means in the future there will be fewer workers bearing the cost of a great number of pensioners.

Chancellor Angela Merkel’s centre-right coalition plans to start incrementally raising the retirement age from 2012 onwards. By 2029, workers would retire at 67. The centre-left Social Democrats (SPD) have shifted their stance since the plan was struck under their “grand coalition” government with Merkel’s Christian Democrats (CDU). The SPD now wants the age to start rising from 2015 at the earliest.

The new study also shows that increasing numbers of older workers use part-time work as a bridge to retirement. In 2008, one in four workers aged 60 to 64 shifted down from a full-time to a part-time job rather than retiring altogether.

There were clear differences between the sexes, with nearly 40 percent of men working past 60. By comparison, some 32 percent of women in the former west and 25 percent in the former east of Germany continue to work past their 60th birthday.

The study, which was carried out by the Family Ministry, also found that nearly one third of people aged 40 to 85 would like to become more engaged in community work, though generally they don’t know how to go about it.

Family Minister Kristina Schröder wants to find ways to tap this potential, the paper reported. The study, she said, confirmed that more people wanted to take responsibility for the welfare of the community.

“That is a goldmine we want to uncover,” she said.

Early retirees, for example, could play an important role in caring for the sick and elderly.

“For example, just reading the newspaper to them every day,” Schröder said.

The Local/dw

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EXPLAINED: Is it worthwhile to set up a private pension plan in Germany?

Experts reckon that very few people who work in Germany end up drawing a net pension that will even give them the current average monthly wage – which sits at a little over €2,500 after tax. Those that do will have likely contributed the maximum amount for several years.

“For a typical foreigner, that public pension is nowhere near enough,” Chris Mulder, Co-Founder of Pensionfriend – a private pension provider catering to Germany’s expatriate community – told The Local.

Mulder says this is especially true for foreigners because most Germans who live and work their whole lives in Germany simply won’t have enough to retire on with state pension alone. Foreigners, he says, have to be even more mindful because of the “patchwork quilt” of pension entitlements they might end of collecting from around the world, which don’t necessarily all combine well to provide livable incomes later in life.

But while it might be clear to people that they’ll need more than their German state pension in retirement, why might someone want to invest in a private pension plan in Germany rather than simply investing their own money themselves – perhaps in stocks and ETFs through a depot?

Private pension funds can typically professionally invest your money for you. Photo: Unsplah / Jenny Ueberberg

Yet Mulder points out that investing by yourself through a depot will typically see you pay withholding taxes every year – and capital gains tax every time you sell.

By contrast, if you invest through a private pension plan, you’ll pay only when you take your money out – either all at once or over time – typically later in life when you hit retirement age and have less income.

In addition, if you hold the private pension plan for at least twelve years and you wait to take out your money until after you turn 62 – you’ll only be taxed on half of your capital gain. Tax benefits also increase the longer you wait to take it out.

READ ALSO: How does Germany’s retirement age compare to the rest of Europe?

What about plan costs?

Mulder says that even with the tax advantages a private pension plan comes with, some providers may charge too much in fees to make it worth it.

A good rule of thumb is to see if a potential provider’s fees are less than the withholding tax you would pay if you simply invested the money yourself.

“We work to set ours up in a way that your tax advantage outweighs our cost,” said Mulder of his own company’s offering.

READ ALSO: How long do you have to work in Germany to receive a German pension?

Can you take your pension with you out of Germany?

For state pensions, this obviously depends on where you go. You can take German state pension payments anywhere in the European Union or associated countries – meaning that retiring to the warmer climes of Spain or Italy won’t affect you pension rights. Leaving the EU might come with some limits, depending on where you go to.

Private pensions though, are much more flexible – and you can typically draw them wherever you end up relocating.

READ ALSO: EXPLAINED: Do your pension contributions abroad count in Germany?

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