Retirement seems within reach, but then you lose your job: When is early retirement an option? And what alternatives do those affected have?
Losing your job shortly before retirement: This can happen to older employees. According to a report by the Federal Employment Agency from April 2022, older people are more affected by unemployment than the average. But what to do when it hits you – and what is more worthwhile: apply for unemployment benefits or take early retirement?
The question cannot be answered in general. After all, both the amount of unemployment benefit and the amount of the pension are calculated individually. In any case, those affected should seek free advice from the pension insurance company.
Anyone who loses their job late in their career can opt to receive unemployment benefit I (ALG I) – instead of applying for early retirement. This is useful if the ALG I is higher than the expected old-age pension. “In addition, a possible pension deduction decreases the later the old-age pension is claimed,” says Dirk von der Heide from the German pension insurance.
The ALG I for older people is on average 60 percent of the previous net salary. Other income such as rental income and assets are not taken into account.
Drawing ALG I increases the expected old-age pension
According to Stiftung Warentest, whether the unemployment benefit lasts until retirement depends on how old the person concerned is and how long he or she was insured in unemployment insurance. For example, if you are 58 years old, you are entitled to ALG I for 24 months, provided that you have been insured for at least 48 months in the past five years.
A plus point: “The receipt of ALG I increases the expected old-age pension, because the employment agency also pays pension insurance contributions,” says von der Heide.
However, those who receive unemployment benefit must meet certain requirements. And try, among other things, to end unemployment on your own initiative and, if necessary, be placed by the employment agency.
The employment agency cannot oblige anyone who receives ALG I to take early retirement. Important: If the employment ends with a severance payment, the entitlement to ALG I is suspended in full. “The severance pay is counted as income,” says von der Heide. This results in a blocking period at the employment agency, the duration of which is calculated individually. In the pension insurance, this time is taken into account as a credit period due to unemployment.
According to Stiftung Warentest, those who receive unemployment benefit II (ALG II) are not directly forced to apply for a pension. However, ALG II is a social benefit. As a rule, other benefits to which you are entitled must be applied for first. Older people can apply for ALG II if ALG I expires before their pension, without having found a new job and without being able to earn their living elsewhere. Other income and assets are taken into account.
In principle, the following applies: “From the age of 63, according to the applicable legal regulation, there is a basic obligation to claim an old-age pension prematurely, i.e. with deductions,” says Matthias Hertle from the Federal Employment Agency.
Early retirement is not always compulsory
However, there may be reasons that this is inappropriate. “This is the case, for example, if those affected could claim their old-age pension without deductions in the near future,” says Hertle. Further exceptions can be found in the so-called Unfairness Ordinance.
For everyone who receives ALG I, the employment agency usually also pays the pension contributions. It is not the approved unemployment benefit that is reported to the pension insurance as remuneration, but 80 percent of the salary on which the assessment of the unemployment benefit is based. With a gross salary of 4000 euros, that would be 3200 euros.
Anyone who loses their job shortly before retiring may consider taking early retirement. But this option is also subject to certain conditions.
From the age of 63 it is possible to draw the so-called old-age pension for long-term insured persons. For this, the insured person must have at least 35 years of insurance. However, this old-age pension is always associated with a deduction. Anyone who turns 63 in 2022 “must expect a deduction of 11.4 percent of their gross pension,” says von der Heide.
On the other hand, anyone who has at least 45 insurance years can take early retirement without any deductions for particularly long-term insured persons. The age of access to this pension will gradually increase to 65 years in the next few years.
Severely disabled people also have the option of drawing an old-age pension early. In addition to a certain age, the prerequisites for the start of retirement are a degree of disability of at least 50 percent recognized by the pension office. In addition, the person concerned must have at least 35 years of insurance.
(This article was first published on Tuesday, November 08, 2022.)
