What are the benefits of retiring

Relaxed into retirement

Employees have to work longer and longer until they retire. The desire for a flexible transition into retirement is growing. Which models are available and for whom they are suitable.

Today's career starters can be discouraged by the thought of the upcoming working life: Employees currently have to be 67 years before they can retire without deductions. Meanwhile, more than a third of 50 to 59 year olds would like to retire before the age of 63, 19 percent even before their 60th birthday. Even among younger workers between the ages of 30 and 39, almost a quarter would like to retire when they are under 60. This is shown by a study by the German Institute for Retirement Provision from 2018.

+++ This article first appeared in our print magazine Human Resources Manager. You can find an overview of the issues here. +++

Employers, too, often want their employees to be able to retire flexibly: “There is now a strong need in companies to offer flexible working hours,” says Professor Maike Andresen, who holds the chair for business administration with a focus on personnel management and organizational behavior at the university Bamberg. Structural change and international competition led to job cuts in many industries. “With flexible retirement models, companies want to make this as socially acceptable as possible - after all, remaining employees should remain motivated. In addition, employers also want to retain older skilled workers for a long time in order to benefit from their knowledge. "

The well-known method of using severance payments to retire employees earlier is becoming increasingly rare, says Andresen: "Severance payments are now simply too expensive for many companies." In addition, the employee leaves the company abruptly, which can lead to a loss of knowledge. "It is important to enable a smooth transition into retirement," says the HR expert. “On the one hand, the knowledge of departing employees can be better transferred to the younger generation. On the other hand, it enables employees to slowly get used to retirement. "
Partial retirement, early retirement, lifetime working time accounts or the flexi pension: Which retirement models are there and who uses them?

Partial retirement

Partial retirement is one of the most popular options. Around 236,000 people with statutory health insurance were in partial retirement in 2017, according to figures from the German Pension Insurance. The concept: employees work shorter hours; the remaining working time until retirement is halved. A distinction is made between two models: In the so-called equal distribution model, the reduced working hours are distributed over the entire duration of the partial retirement. The model is suitable, for example, for people who only want to work part-time in old age or who are used in phases for certain projects.

The block model, on the other hand, is divided into an active and a passive phase: First, the employee works full-time, but only receives half of his salary. In the passive phase he is free and receives the other half. The block model has become widely accepted in practice - although it was not originally intended that way. "After all, with part-time work, the aim was to retain employees for longer," says Professor Andresen.

The Volkswagen Group is currently planning a complete switch to electromobility and is cutting jobs. In order to make the downsizing as socially acceptable as possible, works council boss Bernd Osterloh has been promoting partial retirement for a long time. So far, around 9,300 VW employees have opted for the model - they will go into the passive phase of partial retirement by 2020. However, partial retirement is not always the best choice for employees: companies with powerful works councils usually increase the reduced salary to 60 percent and pay additional pension insurance contributions. Nevertheless, employees in partial retirement have to cope with pension losses later. Another disadvantage: "Some employees can no longer do their original job with it if it is not feasible part-time," says Andresen.

Lifetime working time accounts

The idea behind lifetime working time accounts is simple: “I can book certain working hours to an account and then withdraw this time at the end of my working life,” explains Andresen. The opportunity arises, for example, with a new collective agreement, according to which employees should only work 38.5 hours a week instead of 40. With a working time account, employees continue to work 40 hours, pay the surplus one and a half hours into their account - and can redeem them in old age. "At the same time, employers can quickly gain additional working time capacity from employees in overload situations and thus cover their flexibility requirements," says Andresen.

Alternatively, parts of the salary can be transferred to the account, which is then paid out for the free phase. This method is offered by the software manufacturer SAP, with which employees have been able to pay into a working time account since 2000. In the so-called savings phase, they forego money - for example from the basic salary or additional remuneration - and pay into the account, where it is converted into time. In the withdrawal phase, they take the time they need from the working time account. The time is later paid to them in the form of money. “This model can also be used for retirement,” says Susanne Löffler, Head of Total Rewards at SAP. Since 2013, older employees have been able to have their saved time paid out in order to finance an exemption before retirement - and thus retire earlier without any loss.

According to Löffler, there are now around 10,000 employee accounts at SAP that have accumulated around 18.5 million hours. "The model increases the attractiveness of the company because employees can use it to make their working hours more flexible," says Löffler. That motivates the workforce. The model is also financially worthwhile: because what employees transfer to their working time account, they do not have to pay tax at first. They also don't have to pay any social security contributions in the savings phase. This income is only taxed and contributed when it is withdrawn. For companies, however, the administrative effort increases: "The accounts must be implemented and protected against bankruptcy," says Löffler. Smaller companies may not have the capacity to do this.

Since April of this year, SAP has been combining lifetime working time accounts with a partial retirement model. While the working time account can be used by all employees, partial retirement is currently only offered to employees born in 1964 and older. A severance program is currently running at SAP until the end of the year. In the long term, however, the company wants to move away from such ad hoc solutions.

early retirement

Large companies in particular make use of early retirement, according to a survey carried out by the union-related Hans Böckler Foundation on various retirement models. Current example: Eon. The Essen-based energy company offers many employees this opportunity to simplify the planned takeover of the RWE subsidiary Innogy. "Because it is a comparatively cost-intensive instrument, the company early retirement regulations are mostly only used to a large extent in times of economic crisis, in the event of site closings or structural staff reductions," says the Hans Böckler Foundation.

It is true that employees can work shorter hours through early retirement. As a rule, however, you have to accept substantial discounts on your pension. Every year that an employee retires earlier, the amount of the pension shrinks by 3.6 percent, according to the R + V insurance. "This is hardly feasible, especially for the low-skilled and low-wage workers," says HR expert Andresen. However, early retirees can take on marginal employment or continue to work part-time. Then they continue to pay into the pension fund and mitigate losses.

Flexi pension

In Germany, more and more people continue to work after they retire. More than 240,000 retirees worked subject to social security contributions in 2017, figures from the Federal Employment Agency show. 980,000 people of retirement age had a mini job, 411,000 over 65 years of age were self-employed.

The so-called flexi pension is intended to motivate such employees even more to continue working after retirement. Because those who receive a regular old-age pension and still continue to work increase their pension entitlement if they continue to pay the contribution. "This way you can increase your pension by up to nine percent a year," estimate experts from the federal government. The advantage: retirees improve their monthly income and at the same time increase their pension. "The Flexi-Rente should help to keep skilled workers longer," explains Francesco Fronholt, employee of the German pension insurance in the Rhineland. “The employer has the advantage that experienced employees are not immediately and completely absent from the company. Their knowledge and their work performance can be retained - usually on more favorable terms. "

The law, which has existed since 2017, is intended to make the transition to retirement more flexible. Above all, it should also be easier for employees who retire before the standard retirement age and want to earn a little extra. "The Flexi-Rente has replaced existing, very rigid statutory regulations," says Fronholt. Previously, retirees could only earn more than 450 euros a month at most twice a year. If they exceeded this amount a third time, their pension was reduced by two thirds. "The regulation took effect if an employee was only five euros above the exemption limit in the third month," explains Fronholt. "That was difficult to convey to those affected."

That changes with the Flexi-Rente: Employees are still only allowed to earn 6,300 euros per year without any deductions from the pension. However, now the pension is not reduced immediately and not so drastically if employees exceed the amount. "Instead, only 40 percent of your additional earnings are credited to your pension, which exceeds the 6,300 euros," says Fronholt. That means: if you have earned 100 euros more, for example, you will receive a pension 40 euros less.