Securing skilled workers: Working in old age should be rewarded with a pension bonus

The Federal Cabinet has launched plans for a new bonus for people who want to work beyond retirement age. Employees already increase their future pension payments if they work beyond the regular retirement age. In the future, however, there will also be the option of having the entitlements paid out in one go – in the form of a so-called pension deferral bonus. The plan is part of the “growth initiative” agreed by the traffic light coalition in July and must now be discussed and approved in the Bundestag.

Work one year longer and receive a 22,000 euro bonus

The bonus is to be tax-free and is calculated from the amount of the lost pension and the health insurance contributions that the pension fund saves for the period of continued employment for those affected. According to calculations by the social association VdK, someone who has achieved a gross pension entitlement of around 1,600 euros by the time they reach the standard retirement age and then continues to work for a year at the average wage could receive a tax-free payment of around 22,000 euros. The Federal Ministry of Finance made it clear that the bonus would be exempt from social security contributions, but whether it would also be tax-free is currently being examined.

Lump sum payment or permanently higher pension

As an alternative to such a one-off payment, however, there is still the possibility of increasing the monthly pension by working longer until the end of life. If the start of retirement is postponed by a year, the old-age pension increases by six percent. In addition, it increases because contributions to the pension fund continue to be paid. According to a recently published survey by the career network Xing, more than half of employees aged 50 and over can imagine working beyond retirement age.

Employer contributions to employees’ accounts

Another new regulation introduced by the cabinet provides that employers can pay the unemployment and pension insurance contributions that they pay for employees of retirement age directly to them. The idea is that this will not only increase their income, but also the incentive to stay in the job longer. If employers do not pay the amounts to employees, they are still obliged to pay the employer contributions to the unemployment and pension funds.

Heil and Habeck emphasise contribution to securing skilled workers

“Anyone who wants to continue to contribute their knowledge and skills voluntarily will benefit from the new regulations. This is an important step to secure experienced specialists for our economy,” said Federal Labor Minister Hubertus Heil (SPD) in Berlin. His cabinet colleague, Federal Economics Minister Robert Habeck (Greens), said: “The measures adopted are important for Germany’s economic development due to the ongoing demographic change, because we cannot do without the knowledge, skills and experience of older people who still want to continue working.”

Also new regulations for fixed-term contracts and widows’ pensions

Part of the proposed legislation is also a relaxation of the requirements for fixed-term employment contracts. These should be easier for employees who want to work beyond retirement age. And anyone who works in addition to receiving a survivor’s pension (“widow’s” or “widower’s pension”) should be able to earn more in the future without this being counted towards their pension. As a result, full-time work at the statutory minimum wage will not be counted when receiving a survivor’s pension, according to the Federal Ministry of Labor. According to the German Trade Union Confederation, gross earnings for a 40-hour week with the minimum wage are around 2,150 euros per month.