Why Retire at 70 ?: “We have opportunities for those who don’t work enough”

The pension system is in danger of collapsing: people are aging and pension funds are tightening. Is a 42-hour working week and work until the age of 70 a solution? Geyer, a DIW expert, says no. From his point of view, less part-time work would put much more strain on the pension fund in the short term.

Metal general boss Stefan Wolf recently called for a gradual increase in the retirement age to 70. And not only that: we should all work even more. Is he right?

Johannes Geyer: First of all, Mr. Wolf is right that the pension is financed mainly from wages, which is work. In this respect, raising the retirement age could play a minor role, but it is not the last resort. The question is what he means by additional work: I would agree with him if he means present potential. For example, we have great opportunities with people who are part-time workers – those who simply work too few hours. The question then arises whether promoting a mini-job makes sense. But I think Mr. Wolf means increasing the weekly working time from 40 to 42 hours. It makes no sense because the workloads for an additional hour of work are getting higher and higher. That is why in many industries it is unrealistic, because employees are already completely overloaded.

Many people are aware of their current structures. For example, because they want to raise their children themselves or want to reduce the workload. For example, others are also sick. How big is this potential?

This is absolutely correct and very important. The debate is often conducted with big headlines – something like, “This is the ultimate solution to the pension problem.” But if you look closely, problems become apparent very quickly.

What problems are you thinking about?

For example, we have come a long way in childcare in the last 20 years, but still have a high proportion of part-time parents. It is also okay if parents want to raise their children. Nevertheless, the question is whether the parents could not get more working hours with better care. And such discussions can be transferred to many areas. Overall, the potential would be huge. For example, the reserve for part-time working women is much larger than that of the 42-hour week.

Mr. Wolf disagrees and says the reserves have been used up …

I do not think so. If we look at mini-jobs and the unemployed, we have huge reserves. In addition, approximately 170,000 people take early retirement due to illness each year. I mean, for example, bad working conditions and psychological pressure. With better care, you can still do something right here. There are also problems: Those who have become sick because of sickness usually do not return to the normal labor market. We have further potential here, even if it subtracts diseases that are difficult to prevent, such as cancer. Finally, there is the issue of immigration. Sometimes I miss it in the public debate.

Why?

We need immigration, there is no way around it. And the more it is done, the less it puts on the pension system.

Many immigrants are stuck in tolerance loops or have no access to the labor market for other reasons. What do you think needs to be changed?

They are two different things. The first is: how do we deal with those who are tolerated and entitled to asylum? The first steps have already been taken to facilitate access, and that’s a good thing. The second is migration to the labor market. Within the EU, Germany benefits greatly as a net importer of skilled workers from Southeast Europe. It was very important for the good development of the labor market in recent years. At the same time, Germany is looking for qualified employees all over the world. It is about the recognition of qualifications or German lessons in these countries. Depending on the immigration country, the obstacles are still too complex.

Is that enough? If people work until the age of 70, this would also be a potential …

You have to count: the retirement age will be adjusted gradually – for example, by linking the retirement age to life expectancy. For example, the current increase to 67 years will not be effective until 2031. If at this pace we raise the retirement age to 70, we will be in the second half of the century. There may be times when we will need this instrument as it will obviously have a mitigating effect. But that doesn’t help us in the short term.

But there are other ideas too, for example that civil servants and self-employed should contribute to the pension system. What do you think about it?

This is basically a reasonable suggestion, especially for self-employed persons who are not covered by compulsory insurance. On the one hand, because part of this group has an increased risk of poverty in old age, on the other hand, I believe that a unified pension system would simplify everything. First, it increases premiums, which would help in the short term. In the long run, the effect is leveling out, but for a while we can suppress the premium increase. Is it worth it? It’s a political decision. In any case, the way there would not be easy.

Where do you see the obstacles?

A single system would mean the abolition of the previous system. Officials would have to be more or less rebuilt. It will be expensive. The system would have to be rebuilt piece by piece and less formal – for example with teachers. In this way, the entire system will change in the long run.

The new working time models do in fact provide for fewer working hours per week. Is this development sustainable for the pension system at all?

It’s hard to say, at least we don’t have our own calculations on this. Retirement is funded by salary, so that’s unthinkable. Another question is whether it is enough to finance good pensions. Here it would be, for example: Reducing working hours can increase productivity and create free space for care. This, in turn, can have a positive impact on care. On the other hand, there are potential losses. You have to balance that, which is certainly not trivial. It cannot be ruled out that it will work – but it is also not an easy question. In any case, the state could also help by channeling more of its own resources into the pension system.

This would be the fourth option …

Yes, and if you look at other countries, some do too. Germany spends around ten percent of its gross domestic product on the pension system. In Austria, it is 14 percent, and Austria has not declined either. So it is a question of political will.

The current system is essentially based on two lines of detention: a contribution rate of 18.6 percent that employees have to pay and a pension rate of 48 percent. Then there is retirement age. Which adjusting bolts are most likely to be twisted?

Johannes Geyer.jpeg

Johannes Geyer is deputy head of the State Department at DIW Berlin. It focuses on social security issues in demographic change.

I think it’s realistic that something will be done with all three of them. However, I believe that the level of pensions will not be reduced further for now. The fiction that we can supplement this with a capital pillar …

… that people themselves save something in their old age …

… this fiction did not come true. We have a part of the population that does not spare, but also needs to be protected. We have a part that saves, but it’s not enough. In short: I think it is unlikely that we could go down to 43%. retirement level, as we used to think. It will be exciting from 2025 when we discuss a premium increase. It will come.

The pension commission has already proposed a path to 24 percent. This would hit the workers hard. Do you find it realistic?

Yes, such contributions are conceivable in the long run. But the question is how to suppress this path. This is where the mentioned possibilities, potential, migrations etc. come into play again. Something like this would partially compensate for it.

If you had a blank piece of paper and you had to draw up a retirement plan, what would that look like?

The pension system has recently stalled with no clear political target. If there were such a goal, for example what employees can expect from their retirement here, the role of the individual pillars could be defined: private, company and statutory. This interaction requires reconsideration. We need to clearly define the role of the laws in the pensions package. And once you have found a position here, we should ask ourselves: How can this be achieved? How much is it? Does immigration work? In the case of a private pillar, you need to make sure that everyone can participate. Otherwise, it will not do much; on the contrary, it will lead to even greater inequality.

Jannik Tillar spoke to Johannes Geyer

The interview first appeared on Capital.de.

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