Reform of Reduced Earning Capacity Pension Cuts Risk of Poverty, but Comes Late

Abstract

An accident, a chronic illness, or even a congenital disability are common causes of a loss of earning capacity. Although the loss of earned income is insured through the reduced earning capacity pension in the statutory pension insurance scheme, the amount received is so low that people with reduced earning capacity are at very high risk of poverty and there is a higher-­than-­average likelihood of them claiming basic income support. Since the 2001 pension reform, there has been a general decrease in average benefit payments. Reforms in 2014 and 2019 introduced improvements to new pensions but existing pensions did not benefit. The reform aims to correct this from July 2024. Calculations show that although this reform could potentially reduce the risk of poverty by around eight percent, there continues to be an above­average like­lihood of people with reduced earning capacity being affected by poverty. In addition, those affected have a low life expec­tancy, meaning that a significant portion of those who could potentially benefit from the reform will no longer be alive when it comes into force. The findings show that the changes need to be implemented quickly and other measures are required to minimize the risk of poverty among those with reduced earn­ing capacity.