Abolishing Germany's 'pension at 63' would save €9.5 billion per cohort, study finds

The cost of early retirement

Germany's 'pension at 63' (Altersrente für besonders langjährig Versicherte) allows workers with 45 contribution years to retire two years before the standard age without deductions. The standard retirement age is currently 66 years and four months, making the earliest possible entry 64 years and four months. For those born from 1964 onward, the entry age will be 65. Each year, between 250,000 and 280,000 employees take this option, accounting for roughly 30 percent of all new pensions and about one-fifth of total statutory pension insurance spending.

The state spends many billions of euros each year on the pension-at-63 offer. It burdens the pension fund while the economy prematurely loses skills, expertise and labour.

The DIW model calculation

The study, conducted by the German Institute for Economic Research (DIW) for the Bertelsmann Stiftung, modelled the 1957 birth cohort, the youngest already fully retired. Researchers assumed that without the early pension, affected workers would delay retirement by an average of ten months and then retire with deductions. The statutory pension insurance would be relieved by around €10.4 billion for this cohort, spread over decades of lower payouts. After accounting for lost contributions to health insurance, long-term care insurance and income tax (totalling roughly €860–900 million), the net saving for the state is €9.5 billion per retiree year-group.

Labour market impact

The study estimates that ending the early pension would keep an additional 125,000 full-time workers in the labour market. The authors note that eligible individuals are predominantly those with long, stable careers and above-average pension entitlements, not mainly people in physically demanding jobs.

The benefit is far greater if we succeed in keeping experienced, well-qualified employees in their jobs for a few months or even years longer.

Political fault lines

The early pension was introduced in 2014 by Angela Merkel's CDU/CSU-SPD coalition under pressure from trade unions, as compensation for raising the standard retirement age from 65 to 67. The Council of Economic Experts and business associations advocate abolition; the CDU/CSU would at least adjust the rules. The SPD and trade unions oppose abolition, and the coalition agreement states that a deduction-free pension after 45 contribution years "remains possible in the future." The federal government is expected to decide soon on a reform package that includes pension policy.

Safeguards for vulnerable groups

The study's authors caution against a blanket abolition. People with limited earning capacity or unstable employment histories would be forced to accept pension deductions. The Bertelsmann experts propose exceptions such as individual health assessments or redesigned disability pensions to avoid hardship.