Germany’s ageing population pressures its social insurance and exacerbates skilled labour shortages. To encourage longer working lives, financial incentives were introduced, primarily abolishing earnings limits for early retirees. Historically, strict limits existed, but these were fully removed in 2023, allowing unlimited additional income alongside a full pension. This effectively ended the principle of pensions replacing earned income.
Since 2023, early retirees with high additional earnings have significantly increased, even amidst a deteriorating labour market. This trend, particularly among those with long contribution histories or disabilities who now retire earlier while earning substantial income, undermines the objective of increasing effective working life. It also heightens expenditure pressure on the statutory pension insurance system, as early retirement with benefit reductions has also risen.
The ageing population in Germany is increasing pressure on the social insurance systems and will (in the future) exacerbate the shortage of skilled labour.
To extend working lives, financial incentives have been created in recent years, in particular through the abolition of earnings limits for early retirees and, since 2026, through tax advantages for employment beyond the statutory retirement age under the so-called “active pension” (Aktivrente).
Historically, additional earnings alongside early retirement were strictly limited, to €6,300 per year until the earnings limit was raised in 2020. As a result, many retirees who took early retirement opted for marginal employment up to 2020. After the earnings limit was increased twice in 2020 and again in 2021, it was completely abolished at the beginning of 2023. Since then, early retirees have been able to earn unlimited additional income without it being offset against their pension. As a result of these reforms, the previous principle that pensions replace earned income has effectively been abolished, since it is now possible to receive both unlimited income and a full pension simultaneously.
Since the complete removal of the earnings limit in 2023, the number of early retirees with so called “high additional earnings,” i.e. earnings exceeding the former limit, has increased. At the same time, however, the labour market has deteriorated since 2023 due to cyclical factors, which may also reduce employment opportunities for older workers, particularly for retirees who already receive pension income.
An analysis of German Pension Insurance full-sample data for the years 2018 to 2024 shows that the share of early retirees with high additional earnings continued to rise in 2024 despite the deterioration in the labour market. Although the pace of growth has slowed compared with the increase between 2022 and 2023, it remains stronger among early retirees than among retirees at the statutory retirement age. Due to delayed employment reporting, it can be assumed that the figures reported for 2024 are still somewhat underestimated.
Persons with long contribution histories and retirees with severe disabilities have, on average, been retiring earlier since the abolition of the earnings limit. Moreover, they now earn income comparable to those who retired at the statutory retirement age. This undermines the objective associated with raising the statutory retirement age, namely increasing the effective working life. In addition, since 2020 a higher proportion of individuals has opted for early retirement with benefit reductions. Early retirement thus increases expenditure pressure on the statutory pension insurance system.
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