(Too) Early Retirement? Germany's Pension Confusion

BMW's ultra-successful CEO Helmut Panke will resign from his post on Sept.1, even though he really doesn't want to. He's leaving because on Aug. 31, he reaches the company's mandatory retirement age of 60. This week, he introduced the press to his successor, 50-year-old Norbert Reithofer.

Forced retirement at 60 remains more the exception than the rule in Germany, and it applies mainly to family-controlled concerns like BMW and Bertelsmann, explained Andreas Zimmermann, director for social policy at the German Confederation of Managers, a Berlin lobbying organization that represents business managers.

Socially accepted discrimination?

"In Germany, it has always been socially accepted to treat older employees differently," Zimmermann said. "Only a few people perceive it as real discrimination. On the contrary, if older employees were given the opportunity to leave early, it was more welcomed than criticized."

Germany's officially mandated retirement age is currently 65 and a new law will gradually increase it to 67 over the next three years. But in reality, the average German already leaves work at 63, when early retirement and disabilities are taken into consideration, according to Holger Schäfer of the Cologne Institute for Economic Research (IWK).

In fact, retiring around 60 was normal in Germany until recently. Firms often preferred to push aside expensive older employees in favor of cheaper, younger ones, and the government facilitated this by subsidizing early retirement schemes.

Early retirement made appealing to employers

The plans are intended to lure older employees away before they reach official pension age with plump buyout settlements partly paid by the government. They were part of a massive DaimlerChrysler restructuring push called "Cultural Model 60" to get rid of any employee over age 60 deemed unessential.

For the employee getting the soft boot, the plan "is a face-saving option," said Zimmermann. "And the government subsidies make it very attractive for employers."

It was not until the 1990s that people begin to realize the cost of putting potentially productive workers out to pasture to feed off the system instead of feeding their work into it, Zimmerman added.

Is retirement the right way to go?

Although the current subsidies, which will be phased out in 2009, are a lower than earlier government payouts, some involved in the debate say it is still too easy for workers take early retirement and businesses to offer it.

"Replacing one bad idea with another bad idea isn't a good solution," said the IWK's Schäfer. "Germany doesn't need it; it provides the wrong sort of incentive. If older people lose their job, they should have to go out and find a new one."

He insists that, despite common wisdom that people over 40 face a much more difficult employment outlook, the jobs are there to be had "if they are prepared to compromise" on such issues as training, salary and location.

Zimmermann said he sees things differently.

"In the past, subsidized early retirement programs have been abused," he admitted. However, "we are not convinced so far that employers are really willing to retain older employees. If you see how eagerly, how intensively companies have used these programs, it not a very encouraging sign. It doesn't send a signal of trust to the older workers."

A study published Monday by the Bertelsmann Institute showed most workers would like to stay at their desks after their 60th birthday and have more of a hand in determining the conditions of their retirement.

Researchers interviewed 1,000 workers between the ages of 35 and 55 on their attitudes toward retirement and found some 61 percent said they would like to decide for themselves when to collect their gold watches, sometime between the age 60 and 67.

Graying population a danger to pension system

The sexagenarians' decision to stay on the job is also important for Germany, according to the report.

"Given the demographic developments, the country urgently needs a social paradigm shift in favor of a longer working life," Bertelsmann Institute head Johannes Meier told reporters when he presented the study's results.

The number of workers aged between 50 and 64 across the EU will increase by 25 percent over the next two decades while those aged 20 to 29 will decrease by 20 percent, leaving German economists wringing their hands over the impending skilled-labor shortage and fretting over the country's pay-as-you-go pension system, which is already teetering on the brink of insolvency.

"This (pension) system will break down if there are not enough people working," Schäfer said. "The dilemma can be solved by lowering the amount of pensions people get, increasing the amount people have to pay in, or raising the retirement age. And in fact we are going to have to do all three of those at the same time."