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EXPLAINED: Could people in Germany soon be working until the age of 68?

A dramatic warning issued by an expert commission to the government has said that Germany faces a “financial shock” if it doesn’t raise its retirement age soon. So will we all have to work for longer in the near future?

EXPLAINED: Could people in Germany soon be working until the age of 68?
An elderly man uses a computer. Photo: dpa | Andreas Gebert

A report issued this week by the Economy Ministry’s advisory council warned that Germany will have to deal with “shocking increases in financing issues for the statutory pension system from 2025 onwards”.

The council said that the only solution was the unpopular step of raising the age of retirement to 68. But the proposal has been met with fierce criticism from left-wing parties.

What is the current retirement age in Germany?

The age of retirement in Germany has been slowly increasing since the year 2012, when a government reform raised it from 65 to an eventual age of 67.

Currently, the age of retirement is being raised by a month each year. People who were born in the year 1956 and are celebrating their 65th birthday this year will have to wait until they are 10 months past their 65th birthday before they can celebrate their retirement.

READ MORE: How does Germany’s pension system measure up worldwide?

Then, starting in the year 2024, the age of retirement will be raised by two months every year until it hits a ceiling of 67. That means that people born in the year 1964 will have to wait until their 67th birthday before they can start to enjoy the third phase of their life.

Why are government advisors calling for it to be raised even further?

As Germans live longer while also having less children, the demographic makeup of society is changing dramatically. While the proportion of working age people to retirees is currently three to one, it is expected to increase to three to two by the year 2060.

That means that there are ever fewer working age people paying into the state pension system to support a pay-outs for an ever larger population of pensioners.

The expert commission’s report predicted that, should current demographic trends continue, the proportion of the state budget that would flow into the pension system would rise from the current size of 26 percent to 44 percent by 2040.

“That would break the federal budget and would not be financeable even with massive tax increases,” warned Klaus Schmidt, who led the commission.

He further warned that increases in state financing of pensions would come at the cost of investment in digital infrastructure and education.

How has the report been received?

It has been met with stinging criticism from left-wing parties.

The left-wing Linke party described it as “an anti-social act of cheek” and promised to “defend the rights of pensioners with tooth and claw.”

They point out that one in five Germans still don’t live to their 69th birthday.

“The numbers speak for themselves: the higher the retirement age, the fewer people who will ever be able to enjoy their pensions,” the party’s social affairs expert Sabine Zimmermann said.

SEE ALSO: Germany plans reforms to avoid double taxation on pensions

The party say that, because life expectancy is higher the more one earns, raising the retirement age effectively means redistributing wealth from the poor to the rich. They want the retirement age to be brought back down to 65.

Praise for the report came from the Federal Employers’ Association, who said that “this conversation needs to be had, and it needs to be had honestly”.

The association warned that if action wasn’t taken on pensions, then Germany would soon have more people receiving benefits than paying into the system.

Are the report’s findings likely to be implemented?

There is almost no chance that the reports finding will be implemented by the current government.

With a national election just over three months away, the coalition won’t want to back a policy proposal likely to unpopular on the doorstep.

The Social Democrats have out and out rejected the report. SPD Chancellor candidate Olaf Scholz accused the expert commission of getting its maths wrong.

Describing the report as a “horror scenario” that was intended to create fear, Scholz said that “I won’t discuss any further increase in the retirement age.”

READ ALSO: Old age poverty in Germany set to rise significantly

The CDU also distanced themselves from the findings.

Economy Minister Peter Altmaier (CDU) said that the retirement age should remain at 67, adding that ‘“that has been my opinion for years”.

After the election, the tone from the CDU could change though, as warnings about the financial viability of the current system have come from various quarters in recent months.

Similar proposals to increase the age of retirement have come from economic institutes and the Federal Bank, all of which predict that the current arrangement is not sustainable in the long term.

The Federal Bank’s proposal goes even further, encouraging the government to push the retirement age up to over 69.

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COST OF LIVING

EXPLAINED: How Americans can retire in Switzerland

A tranquil, peaceful and safe country, Switzerland's appeal is undeniable. Here's how Americans can retire in Switzerland.

Two people hold up their American passports in a European town square
While it is not easy for Americans to retire in Switzerland, it is fortunately not impossible. Here's what you need to know. Photo by Spencer Davis from Pexels

With clean streets, tranquil vibes and low crime rates, Switzerland is a perfect place to retire. 

People from across the world have flocked to Switzerland to spend their later years, with American singer Tina Turner, Canadian singer Shania Twain, British musician Phil Collins and Swedish businessman Ingvar Kamprad – of IKEA fame – among the many who have all chosen to spend their twilight years in the alpine nation. 

For Americans – or indeed anyone – looking to retire in Switzerland, the good news is you don’t need to be world famous in order to do so. 

You will however need to jump through a few hoops. 

The rules for retiring differ on the basis of whether you are from an EU/EFTA state or not, with the US, UK, Australia, India and Israel being some of the many examples of ‘third countries’. 

If you are not American, click the following link for information on how to retire in Switzerland. 

READ MORE: Everything you need to know about retiring in Switzerland

Here’s what you need to know. 

How can Americans retire in Switzerland

There are two broad categories of Americans wanting to retire in Switzerland: those who already live here with valid working permits – and those who still live in the United States. 

If you worked or are working in Switzerland on a valid residence permit, retirement is unlikely to be difficult at all. 

Switzerland has a retirement age of 65 for men and for women. The retirement age for women was raised from 64 to 65 in June 2021. 

If you fit into this category, then please check our our extensive guide on pensions in Switzerland. 

EXPLAINED: How does the Swiss pension system work – and how much will I receive?

But if you currently do not live in Switzerland/have a Swiss residence permit and would like to retire here, this is still possible. 

How can non-residents including Americans retire in Switzerland? 

In order to be granted a visa to retire in Switzerland, you need to have: 

  • Adequate financial resources and proof you will not look for work in Switzerland;
  • A close connection with Switzerland;
  • You must have Swiss health and accident coverage.

These points are dealt with individually below. 

How does the process work?

If you come from outside the EU / EFTA, you must apply for a visa with a Swiss diplomatic/consular mission in your country of residence, i.e. in the United States. 

First, they will check that you don’t have any criminal records.

You must be 55 years of age or older to move to Switzerland from abroad in order to retire. The Swiss retirement age is 65. 

You will need to demonstrate a close link to Switzerland.

This can be past residency, family ties or even frequent holidays in Switzerland can suffice as evidence of a close connection. 

Real estate can be a factor, although keep in mind that owning property in Switzerland is no guarantee of a close connection. 

Reader question: Does owning a second home in Switzerland give me the right to live there?

Also, in order to be considered, you must prove that you have enough financial resources to live in Switzerland without having to work or claim welfare benefits.

You do not have to transfer the bulk of your financial interests to Switzerland, although this is likely to help illustrate that you have enough financial resources to move there. 

You can transfer your pension to Switzerland provided there’s a bilateral arrangement with your country of origin. More information is available here. 

READ MORE: How to get a visa to retire in Switzerland

The eventual decision is made by cantonal authorities and is often highly discretionary.

Tina Turner, who has lived in Château Algonquin in Küsnacht, Zurich, since 1994, is perhaps the most prominent American who has retired in Switzerland. 

While speaking a Swiss language is a pre-requisite of citizenship, as with plenty of other things, the authorities appear willing to make exceptions when the price is right or when you’re the honorary mayor of Nutbush City.

Turner gave up her American citizenship in 2013 and became a Swiss citizen, despite not speaking German, French or Italian.

Which brings us to…

Money helps grease the wheels

A little-known article of the Swiss law — Article 30 of the Federal Aliens Act — allows wealthy foreigners from outside Europe to move to Switzerland.

Cantons can issue residence permits B to these people, if local authorities deem that there is a “significant fiscal interest” in such a move.

Golden visas: Everything you need to know about ‘buying’ Swiss residency

What exactly does “significant fiscal interest mean?” 

This term is defined by each canton.

For instance, the lowest annual tax rate for a non-EU foreigner is 287,882 francs in Valais, 312,522 francs in Geneva, and 415,000 Vaud. 

Every year, around 40 to 50 people ‘buy’ their way into Switzerland this way, as reported by TagesAnzeiger, which used the numbers published by the State Secretariat for Migration (SEM).

How much should you save for a ‘comfortable’ retirement in Switzerland?

To maintain the usual standard of living during retirement, residents of Switzerland need more savings nowadays than four years ago, according to an analysis by UBS bank, which compared the pension systems of 24 countries.

In 2017, the last time UBS conducted a similar study, that number was 11 percent.

The new UBS International Pension Gap Index found that “the Swiss pension system still enjoys a high reputation. However, contrary to other countries, it is more difficult to push through urgently needed reforms to ensure this reputation will last”.

Click the following link for more information

READ MORE: How much should you save to retire in Switzerland?

Please note: As with all of our explainers, they are intended as a guide only and do not constitute legal or financial advice. Please discuss any financial decisions with a certified expert in the field. 

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