German CB Recommends Linking Retirement Age to Life Expectancy

Germany's central bank on Monday recommended linking the retirement age to life expectancy in order to stabilize the country's statutory pension system in the long term.

"The coupling noticeably dampens the pressure on the contribution rate and the federal government budget," Deutsche Bundesbank said in its monthly report. "With the longer working phase, employment is also rising in addition to individual pensions."

RELATED:
 Lithuania Blocks Transit of Russian Goods to Kaliningrad

In many other countries in the European Union, including Denmark, Italy, the Netherlands or Portugal, the statutory retirement age was already rising in line with life expectancy, the bank reminded.

Since 1871, the life expectancy in Germany more than doubled to currently 78.6 years for men and 83.4 years for women, according to the Federal Statistical Office (Destatis).

The pressure on Germany's pension system is growing. In 2020, 21.8 million people received 341 billion euros (358.7 billion U.S. dollars) from the country's statutory, private or company pension schemes, nearly 10 percent of the gross domestic product (GDP).

In response, the retirement age for receiving full statutory pensions in Germany is to be gradually raised to 67 by 2031. During the current legislative period, however, the German government does not seek to cut pensions nor to raise the statutory retirement age.

Simulations running until the year 2070 showed that the "pressure on pension finances will ease noticeably if the retirement age continues to rise gradually after 2031," Deutsche Bundesbank said in its report.

In July, pensions were raised by 5.35 percent in the west of Germany and 6.12 percent in the east. "The statutory pension is working very well despite the challenges we are facing right now," said Minister of Labor and Social Affairs Hubertus Heil when announcing the increase. (1 euro = 1.05 U.S. dollars)