How Do People Respond to Later Retirement Ages? Evidence from Austria and Germany

This blog is based on an article in the Journal of International and Comparative Social Policy by Lisa Schmidthuber, Charlotte Fechter, Heike Schröder and Moritz Hess. Click here to access the article.

The paper considers the relationship between welfare reforms and individual retirement behaviour in Austria and Germany. In doing so it evaluates how specific labour market groups in both countries respond to the political measures taken to combat early retirement trends. Austria and Germany are used for comparison because they have displayed similar social policy and pension scheme traditions as well as developments in the past.

This similarity is confirmed again here. Both countries made comparable efforts to reduce early retirement. Political measures focused on later statutory retirement ages and the closing off of early retirement pathways. Our findings reflect these measures. Results indicate increasing average actual retirement ages in both countries. Also, early retirement options lose their importance, while working until pension age has gained in significance. However, we also found differences between the two countries. Findings suggest stronger increases in retirement ages in Germany. Further differences are uncovered when group difference in retirement timing are regarded. Whereas sex differences in retirement timing are still found in Austria, Germany exhibits low sex differences, but strong inequalities between education groups. The main finding is that similarities with respect to policy measures have different effects in the country-specific individual contexts. The paper argues that changes to social policy paradigms cause welfare state dynamics.

Background

European Union member states have agreed to reform labour market and pension policies to address challenges associated with demographic ageing. Consequently, many countries have changed public policies to delay labour market exits by closing early retirement options and delaying retirement ages. In many aspects, Austria and Germany share a similar response to demographic ageing. The roots for this development are historical:  The Bismarkian pension system, a cluster of pensions systems to which both Germany and Austria belong, is characterised by a strong reliance on basic insurance in the public pillar with earning-related pension benefits, while occupational and private pensions play a minor role.

Reforming Retirement in Germany

The German policy shift from early to late retirement has been successful in increasing older workers’ employment rate, which is, in turn, leading to a more stable old-age security system. However, concerns have been raised regarding a re-emergence of social inequalities in late employment careers and the work-retirement transition in Germany. While highly-skilled experts in privileged jobs with good working conditions and generous pension provisions can and often actively choose to retire later, low-skilled and low-income workers are often forced to extend their working lives for financial reasons but are struggling to do so due to adverse working conditions and high unemployment risks. 

Reforming Retirement in Austria

Austria has implemented several pension reforms particularly focusing on improving the labour market integration of older individuals. Changes to the benefit structure, the increased statutory retirement age and the process of capital-covered pensions have increased both old-age employment rates and actual retirement ages, even though on a lower level than in Germany. The female employment rate increased stronger than it has for men. In contrast to Germany, Austria has implemented the compulsory pension insurance for self-employed without co-workers. Differences in pension eligibility point to inequalities in retirement timing across sex and household context. While in Germany the gap between high- and low-income groups is widening, in Austria the ‘gender gap’ to pension entitlements is increasing.

Research Questions

After having discussed similarities and differences between the German and Austrian welfare and labour market regimes, the question remains how these regimes and associated policy changes over time have been affecting individual retirement transitions. Are German and Austrian older workers, indeed, retiring later, in line with the extended working life paradigm? Furthermore, is the gender gap in retirement timing decreasing or is there increasing social inequality in both countries? In order to respond to these questions, we analyse the development of the retirement timing in Austria and Germany and investigate individual retirement reasons.

Methods 

Data from the Survey of Health, Ageing and Retirement in Europe (SHARE) which provides internationally comparable longitudinal micro data was used. To explore changes of Austrian and German individuals across time, two time points were investigated. The first sample is drawn from 2004 and the second from 2015. We apply OLS-regressions with the dependent variable retirement age and the main independent variables sex and educational attainment for respondents in Austria and Germany.

Key Findings

  1. Since the implementation of retirement reforms, Germany shows fewer sex differences in retirement timing. However, educational groups differ in their retirement timing based on level of qualification. Austria shows persistent sex differences in retirement timing.
  2. Country-specific individual contexts dominate retirement behaviour.
  3. Current retirement reforms that aimed to combat demographic ageing appear to produce social inequalities.
  4. Changes to social policy paradigms evoke welfare dynamics.
  5. It is important to consider how changes to social policy paradigms will affect different socio-economic and labour market groups.

About the authors

Lisa Schmidthuber is a Postdoctoral Researcher at the Vienna University of Economics and Business.

Charlotte Fechter is a Research Associate at the University of Koblenz-Landau.

Heike Schröder is Senior Lecturer at Queen’s University Belfast.

Moritz Hess is Professor at the University of Applied Sciences Niederrhein

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