Do not suspend sustainability factor
There are two ways to take the first steps towards financial stabilisation of the pension system: The first is the sustainability factor, which automatically reduces pension increases when the ratio of pensioners to workers shifts in favour of pensioners, thereby increasing the burden on individual contributing workers. According to the current legal situation, the sustainability factor is suspended until the end of this year. If the legislature does nothing, the factor would automatically apply again from 2026 and dampen pension increases. This would not be an active pension cut. The opposite is true: a further suspension of the factor – as provided for in the cabinet draft of the ‘Pension Package 2025’ of 6 August 2025 – would be a change in the law that would represent a pension increase compared to the current law.
High proportion of new pensioners retire well before the retirement age
Secondly, a very high proportion of new pensioners are currently retiring well before the actual retirement age. For those born in 1959, this is 66 years and two months, rising to 67 years for those born in 1964. According to an analysis by the IW, approximately 1.8 million people born between 1954 and 1957 will have taken early retirement by the end of 2023, which represents around 44 per cent of each birth cohort. In addition to health reasons, there are two ways to do this: Firstly, there is the regulation for people who have been insured for a particularly long time (‘pension from 63’), according to which people can retire without any reductions after 45 years of contributions. Among the age groups mentioned above, 600,000 people are taking advantage of this. Abolishing this regulation appears to be politically difficult to implement.
Increase reductions for early retirement
However, it would hardly be considered a pension reduction if the deductions for early retirement outside this scheme were increased. This scheme, which around 300,000 people from the above-mentioned group have taken advantage of, states that contributors can retire with deductions after 35 years of contributory employment. For each month before reaching retirement age, 0.3 per cent of the gross pension is deducted. However, this disadvantage is reduced by conflicting regulations on marginal employment for pensioners without additional income limits. A simple way to make early retirement less attractive would be to increase the reductions for early retirement, for example to 0.5 per cent of the gross pension per month. This would not constitute a pension cut either, as it would only affect future pensioners, who could prepare themselves for it, and would not affect the pensions of regular pensioners.
The rise in pension system costs can be curbed
There are therefore ways of reducing the rise in pension system costs and thus securing the solidarity-based pay-as-you-go system in the long term without lowering pensions across the board compared with the current legal situation. In order not to squander this opportunity, the increase in pensions provided for in the cabinet draft of the ‘pension package’ through the suspension of the sustainability factor should be discussed again in the legislative process. An increase in the reductions for early retirement should also be implemented quickly.
Read the paper "Kurzfristige Einsparoptionen in der gesetzlichen Rentenversicherung" in full PDF. Please note that the paper is only available in German.
