The German government is planning incentives to make people work longer beyond the statutory retirement age, as the country’s labour market faces a shortage of skilled workers and as baby boomers retire.

The government wants to start making unemployment insurance payouts to employees originally paid by employers, as incentives for people to work after reaching the statutory retirement age, according to the compromise reached by the country’s governing parties – Social Democrats (SPD), Greens and liberal party FDP — on the budget for next year.

Moreover, the employers’ contributions channelled towards the manager of the pay-as-you system, Deutsche Rentenversicherung, would be paid out to the employee, if the employee decides against voluntary contributions to the first pillar scheme, according to cabinet’s proposal.

The government is also assessing the introduction of a new option for remunerating additional years of work after reaching retirement age, to make working in old age more attractive, it said.

One option is to receive monthly supplements on future pensions for those employees postponing retirement. Employees will also be able to opt for a pension deferral bonus in the future, meaning that the employee receives a one-off payment equal to the lost pension payments, it added.

Employees will also receive from Deutsche Rentenversicherung the contributions saved for health insurance, a form of pension deferral bonus, tax-free.

The government will also change the earnings limits for survivors’ pensions, with an amount of earned income of €545m per month that will not be taken into account when calculating income in the future, it said.

The measures to keep people at work are part of the “Growth Initiative”, a corollary of the budget for 2025, and are aimed at giving a boost to a stagnating German economy.

The budgef for 2025 will have a volume of €481bn next year, including €57bn deployed for investments, and net borrowing under the debt brake amounting to €44bn, according to the government. The government will approve the draft budget for 2025 at its next meeting on 17 July 17.

The latest digital edition of IPE’s magazine is now available