Retirement due to Reduced Earning Capacity and Reform Proposals

Mitarbeiter in diesem Projekt:

In the spring of 2012, the German Federal Ministry of Labor and Social Affairs (BMAS) launched the so-called “pension package” (Rentenpacket), which contains two measurements aimed at increasing benefits for pensioners who are the most exposed to poverty risk due to reduced earning capacity. On the one hand, a two-year prolongation of the non-contributory supplementary period was discussed. Thus, disability pensioners receive benefits as if they had worked until the age of 62, instead of 60, assuming the average income which they had earned before their earning capacity was reduced. On the other hand, a most-favored-test was suggested. The problem is that many people earn less just before they retire because of disability. The process of becoming disabled is gradual. When calculating average earnings, this circumstance might lead to lower benefits. Therefore, the idea is to conduct a most-favored-test. It compares the average earnings before the disability pension, one time for all working years and another time not counting the (possibly less healthy) four years just before the retirement, and takes the higher value. In our project, we simulate the impact of these two measurements on pension benefits using a dataset of the German Pension Insurance (Deutsche Rentenversicherung) from the year 2010 containing 33.227 life histories. The simulation uses these and calculates hypothetical benefits under the reform proposals. We find that the prolongation of the non-contributory supplementary period and the most-favored-test lead, on average, to an increase of pension benefits by roughly 4.5 percent and 1 percent, respectively. Taking into account the reform of 2011, which counts times of receiving social assistance (ALG II) as creditable periods, payments for disability pensioners even increase by overall 8 percent. The results were published in the German journals “Deutsche Rentenversicherung” and “Sozialrecht + Praxis”.

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