(de-news.net) – According to IW and IAB estimates, the proposed five-year transition to phase out penalty-free retirement after 45 years of contributions could enable up to several million workers to retire earlier, potentially reducing the labor supply. A draft from the Labor Ministry that was leaked describes a gradual pension reform that would phase out the current early-retirement provision, link the retirement age to life expectancy, and establish new regulations for employees who are unable to continue in their jobs. The SPD is in favor of a five-year transition period, while Union parliamentary leader Thorsten Frei is advocating for a shorter one.
The penalty-free retirement age for workers with 45 years of contributions has already risen gradually and now stands at 65 for cohorts born in 1964 or later. As a result, Germany’s widely used term ‘pension at 63’ no longer describes the actual retirement age available to most current workers who meet the 45-year contribution requirement. The proposed reform would take the change further by phasing out the 45-year pathway entirely after a transitional period. In its place, a more narrowly targeted early-retirement provision would apply to long-term contributors who are no longer able to continue working in their established occupation because of health-related limitations.
The SPD’s proposed five-year transition period before ending penalty-free retirement after 45 years of contributions could lead roughly two million additional workers and skilled employees to leave the labor market earlier than they otherwise would, according to calculations by the employer-linked German Economic Institute (IW). The estimate reflects the exceptionally large birth cohorts expected to reach eligibility for the long-service retirement provision between 2027 and 2031. Based on retirement patterns recorded in 2025, the IW estimates that about 1.8 million people could benefit from a five-year transition arrangement. The resulting earlier departures could further reduce the availability of experienced and qualified workers at a time when large cohorts are already approaching retirement, potentially limiting labor supply and weighing on economic growth. The Institute for Employment Research (IAB) has reached a comparable assessment, estimating that between 1.5 million and 2.5 million employees could leave the workforce two to three years earlier under such an arrangement.
The debate has unfolded alongside the emergence of an early draft from the Federal Ministry of Labor, dated Aug. 21, 2026, that surfaced earlier than expected. The document reportedly contains proposed legislation intended to translate the Pension Commission’s recommendations into law, although its origins and the extent to which it had been coordinated within the federal government were initially unclear. The ministry subsequently emphasized that the document was only an early working draft prepared at the departmental level and did not represent the government’s current position. A formal ministerial draft was still under preparation, leaving the precise shape of the eventual legislation open.
Two central recommendations of the Pension Commission are reflected in the document: the gradual phaseout of penalty-free retirement after 45 years of insurance contributions and a future link between the statutory retirement age and life expectancy. Under the proposed 2:1 formula, however, an increase of one year in life expectancy would translate into eight additional months of working life. The mechanism would not initially apply to people born between 1965 and 1967, who would continue to face a statutory retirement age of 67, differing from the commission’s recommendation. Only later cohorts, beginning with those born in 1968, would be affected by a higher retirement-age threshold. The approach therefore establishes a delayed transition into the new mechanism rather than applying the adjustment immediately to all cohorts covered by the broader reform.
SPD and Union parties disagree over pace of early-retirement adaptation
The phaseout of penalty-free early retirement would likewise take place over an extended period rather than through an immediate termination of the existing provision. People born through 1966 would remain covered by the current arrangement, while those born between 1967 and 1971 could continue to qualify under certain specified early-retirement arrangements. Separate provisions would also apply to some workers affected by the coal phaseout. At the same time, the draft provides for a new pension provision for people who can no longer perform the occupation they have pursued over many years because of health-related limitations. For those who meet the requirements, 35 qualifying insurance years would permit retirement two years before the statutory retirement age without deductions. The proposed replacement thus combines a gradual withdrawal of one early-retirement pathway with a new provision aimed at a more narrowly defined group of workers.
Eligibility for that new provision would be determined through fixed criteria rather than an individualized health assessment. Applicants would generally have to demonstrate that they had worked in the same occupational field for seven years and had been continuously unable to work for at least 12 months because of the same diagnosis. The use of predetermined requirements would provide a more clearly defined framework for access, while also establishing specific conditions that applicants would have to satisfy. Separately, the earliest retirement age with deductions for long-term insured workers would increase from 63 to 64. That threshold would subsequently be raised in parallel with the statutory retirement age, linking the two mechanisms more closely as the broader pension system changes.
At the center of the dispute over the transition period is the principle of so-called legitimate-expectation protection. The concept is intended to recognize that people approaching retirement may already have structured their personal and financial plans around the pension rules currently in force. Abrupt changes could therefore affect decisions that were made under the assumption that those rules would remain applicable. Although no specific statutory period establishes how long such protection must last, five years is generally regarded as a minimum benchmark. Against that backdrop, SPD pension policy expert Annika Klose proposed a five-year transition period. Labor Minister and SPD leader Bärbel Bas has likewise supported adequate transitional arrangements, arguing that people approaching retirement need sufficient time to adjust their plans to changes in the rules.
Thorsten Frei, leader of the Union parliamentary group, has taken a different position on the duration of the transition. He has argued for a shorter period than the five years proposed by the SPD. At the same time, he has acknowledged the need for transitional provisions and protection for people whose retirement planning is already based on the existing system. The disagreement therefore concerns primarily the length of the adjustment period, as the competing positions both recognize that changes to retirement rules affect people whose decisions may have been made under the previous framework.
