Early Retirement for the Underprivileged? Using the Record-linked SHARE-RV Data to Evaluate the Most Recent German Pension Reform

In most aging countries, reforms have increased the statutory retirement age, closed early retirement pathways, and/or reduced other incentives to retire early. Recently, however, several countries have experienced backlashes to such reforms – among others Germany. In 2014, Germany re-introduced early retirement at age 63 without actuarial adjustments (down from age 65) for workers with 45 years of contributions to the pension system. This very popular move by the then new government was motivated by the desire to help underprivileged workers who are more likely to be worn out by long work histories, typically in less well-paid and physically demanding jobs. The subject of this paper is whether the reform achieved this aim. The analysis is based on the German “SHARE-RV” data which links German SHARE data with the employment and earnings records of the German public pension system. Administrative data carry very precise information on employment and contribution histories. This permits the identification of eligible retirement pathways and the computation of pension claims. In turn, SHARE offers data on socio-demographics not available in administrative data. For retirement analyses, for instance, SHARE contains information about the household context, rich socio-economic characteristics, education, and very detailed health measures. Our results indicate that the beneficiaries of the reform are not the underprivileged as claimed by the government - they actually have a higher average net household income. Moreover, there is no evidence that the beneficiaries are more often ill than non-beneficiaries. Thus, if the aim of the new German early retirement pathway was to target the underprivileged with bad health, then the SHARE-RV data provides no evidence that the policy achieved that aim – rather, the contrary appears to be the case. This project was in cooperation with Benedikt Alt. The paper was published in the SHARE wave 5 first results book.