Nearly half fear working until later pension

Nearly half of Germans are scared that they will not be fit enough to continue working until the new retirement age of 67, a new study has suggested.

Nearly half fear working until later pension
Photo: DPA

Nearly 5,000 employees answered a questionnaire organised by the German Association of Trade Unions (DGB), the Süddeutsche Zeitung newspaper reported on Monday.

The results showed that 42 percent felt they would be able to continue working until the statutory retirement age. But nearly half – 47 percent – reckoned they would have difficulty, or even not be able to do so.

The rise in retirement age was introduced last year, and will be introduced gradually, the paper said. Currently it is 65 and two months, but this will rise steadily until it reaches 67 in 2030.

Men seemed to be more convinced they would be able to keep working until they reached the statutory retirement age. And of those who were already 55 and still working, 54 percent said they would be able to make it all the way to retirement.

A big factor is the place a person works. Those in the chemicals industry, in public administration and in the science sector were the most optimistic about being able to continue working beyond 65.

In contrast, those in the hospitality industry, in social work and employed by cleaning firms were far less confident, with less than a third confident they would be able to work until they were 67.

The DGB said working conditions were crucial in such considerations, with more difficult, shift-organized and physical work being major factors leading to early retirement.

“The government must at last recognise that under current conditions retirement at 67 is unreachable for most employees, and must be postponed at the least,” Michael Sommer, DGB head, told the Sueddeutsche Zeitung.

He called for reasonable and healthy work conditions so that people would at least be able to continue in their jobs until 65.

People who retire early pay for it with a lower rate of state pension, losing 0.3 percent for each month they leave work early – until a certain maximum reduction. Those who leave early because of illness also generally get smaller pensions – on average €607 a month. Sommer described this as a socio-political scandal.

Figures from the Labour Agency show that in 2011, 63.8 percent of those aged between 55 and 65 were working, a significant increase on the figure from a decade previously.

The Local/hc

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

If you’re employed in Germany, you’re almost certainly contributing to your state pension. But it might not be enough to live on in your old age, meaning people often have to put other plans in place to retire comfortably. Here’s why some pick private pensions on top of their public ones.

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?