Germany finalizes flagship pension reform

Economists warn lowering retirement age for certain groups could hurt economy

BERLIN (Reuters) — German Chancellor Angela Merkel's coalition agreed on Monday on the final details of a flagship pension reform to lower the retirement age for some people that economists have warned could hurt Europe's biggest economy.

The coalition parties overcame differences over some details, clearing the way for lawmakers to vote on it on Friday.

The plans are almost certain to be passed thanks to a big parliamentary majority for Merkel's "grand coalition" of conservatives and the centre-left Social Democrats (SPD), although some of Merkel's Christian Democrats may oppose it.

"The parliamentary parties of the coalition have agreed on a pensions package," conservative Volker Kauder said, adding it was "a good example of how the grand coalition can get its work done.”

The early retirement proposal is a pet project for the SPD who are committed to social justice but economists have warned that Germany, with its aging population and shortage of skilled labour, could suffer under the cost.

In 2007, a previous Merkel-led grand coalition agreed to gradually raise the official retirement age by two years to 67 between 2012 and 2029.

Under the new plans, some people will be allowed from July to retire on a full pension at 63, provided they have worked for 45 years.

The parties had disagreed about allowances for people who had claimed jobless benefits. The compromise reached permits those who had been unemployed for a short time to retire early but prevents people from stopping work at the age of 61 by claiming unemployment benefit for two years and then taking up early retirement at 63.

That whole measure will cost about 900 million euros in this year, rising to 3.1 billion euros a year in 2030.

In addition, some 9.5 million mothers or fathers whose children were born before 1992 will receive higher benefits. This measure will cost 6.7 billion euros a year and will be paid for mainly via social security contributions.

The plans also set rules for people who retire early for health reasons. Those measures will cost 100 million euros in 2014, rising to about 2.1 billion euros in 2030.

Germans work longer than Greeks, Spaniards and French people, says Eurostat, retiring after about 37-1/2 years in employment. The EU average is 35 years. But the reform is raising eyebrows given that Germany has demanded economic sacrifices from its struggling euro zone peers.

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