Under the plans put together by the government, people who work at least one year longer than the standard retirement age will receive a “pension deferral bonus”.

The idea is that anyone who postpones the start of their pension and is employed for at least 12 months is to be rewarded with a one-off payment in the amount of the pension payments he or she has missed out on.

The coalition government foresees that this would be paid out in one go when retirement actually begins.

In addition there is a premium because the pension insurance company did not have to pay health insurance contributions on the pension during this time – currently this is 8.15 percent. The factor depends on the current contribution rates and employees can accumulate the premium for a maximum of three years.

This is “a new benefit of its own kind from the statutory pension insurance scheme”, according to a government draft paper.

When is it set to come into force – and why?

Currently this change is in the draft stages but the government wants to introduce the regulation in January 2027, giving time for organisations to prepare. 

The aim is to encourage more people to work and pay into the social security system amid the worker shortage. As the baby-boomer generation retires, workplaces are struggling to fill vacancies.

Labour Minister Hubertus Heil (SPD) announced at the beginning of June that people beyond retirement age should receive financial benefits if they continue to work.

Four measures to provide more incentives for working in retirement are planned in total, and the cabinet is to decide on these in September. However, some of them are not to come into effect until 2027, including the newly planned bonus.

Germany has also been easing immigration laws to help get more skilled workers from outside the EU into the workforce.

The Opportunity Card, which was introduced in June, is one of those policies. 

READ ALSO: How many skilled workers will immigrate to Germany with the opportunity card?

What’s the reaction?

Criticism of Heil’s plans came from both unions and employers.

Anja Piel, head of the German Trade Union Confederation (DGB), told the Süddeutsche Zeitung the decision was a “billion-dollar grab at the social security system”.

Piel also added that the plan was unfair to workers who struggle with health conditions. “Many employees can’t work any longer because working conditions are too strenuous and they simply can’t cope in terms of their health,” she said. 

Steffen Kampeter, Managing Director of the Confederation of German Employers’ Associations (BDA), called for an end to the retirement age of 63. Removing incentives for early retirement would be “much more effective”,” he said.

People of retirement age “do not usually go to work for financial reasons”, he added. What is more important is enjoying their work, their interest in their job and the contact with colleagues.