Statutory Old Age Pension Scheme

Mandatory insurance

• Employees (incl. persons in vocational training and economically active persons with disabilities).
• Specific groups of self-employed, such as self-employed teachers, lecturers, nurses, midwives, artists¹, and self-employed persons working primarily for a single client without having employees of their own².
• Specific groups of economically inactive persons, such as parents during child-raising periods and home caregivers; claimants of income replacement benefits incl. recipients of sickness benefits, injury benefits, transitional allowances and unemployment benefits (ALG I), if they were mandatorily insured in the year before they began drawing the benefit.

Opting in

• Specific groups of non-compulsorily insured persons, such as developmental aid workers, the self-employed,³ recipients of social benefits.

Exempted

• Civil servants, soldiers, judges or persons with equivalent insurance coverage; short-term marginally employed persons; the marginally self-employed; university students.
• Persons who have reached the standard statutory retirement age and receive a full old age pension (if combined with employment: option to waive exemption from mandatory insurance to increase pension benefits).

Opting out

• Persons insured within a liberal professions scheme; persons in marginal long-term employment.

Voluntary insurance

• Persons not compulsorily insured in the statutory old age pension scheme and of at least 16 years of age; also available for Germans living abroad.

General finances

• Mainly PAYG-financed from insurance contributions.
• Partly tax-financed out of the general federal budget (fixed lump sum payments defined by law).

Contribution rates to mandatory insurance

• Fixed share of monthly gross earnings (18.6%) with contribution assessment ceiling.
• Contributions shared in parity between employer (9.3%) and employee (9.3%) for contributory earnings of more than EUR 1,300; different shares between employer and employee apply to earnings of EUR 1,300 and less.
• Special provisions for contribution payments (rates and/or modalities) apply to distinct occupational groups (e.g. miners; the self-employed; artists).

Contribution rates to voluntary insurance

• No fixed share/contribution rate; monthly contributions can be chosen freely within a predefined range.

Taxation of contribution payments

• Tax exemptions for employee’s contributions (100% after 2024) capped by maximum amount; employer’s contributions 100% tax-exempted.

• Self-administered federal and regional pension carriers take administrative responsibility for all affairs related to the scheme: the ‘German Pension Insurance – Federal Institution’, the ‘German Pension Insurance – Mining, Railways, Sea’, and a number of ‘Regional Institutions of the German Pension Insurance’.

Qualifying conditions

• Standard old age pension: statutory retirement age increases to 67 for insured persons born after 1963; minimum insurance period: 5 years.
• Special conditions apply for old age pensions for long service (35 years; age 67 with option of early retirement), exceptionally long service (45 years; age 65), for severe disability (35 years; age 65 with option of early retirement), and long-service miners (25 years; age 62).

Early retirement

• Available for long-service old age pensions (at age 63) and severe disability old age pensions (at age 62) with negative (permanent) adjustments to pension benefits (0.3% per month).

Deferred retirement

• Retirement can be deferred with positive (permanent) adjustments to pension benefits (0.5% per month).

Combining employment & retirement

• Termination of employment is not a precondition for claiming pension benefits.
• After reaching statutory retirement age employment is permitted without earnings limit; income ceilings apply to retired persons below standard statutory retirement age with options for ‘partial’ old age pensions.

Pension benefits

• Primarily based on the amount of contributory earnings throughout working career, including pension-credited periods of e.g. child-raising.
• No specification in law regarding fixed minimum and maximum amount of pension benefits;⁴ maximum pension benefits levelled due to contribution assessment ceiling.

Benefit calculation

• Based on the multiplication of the following factors:
• Personal earning points: relate to the insured income for each calendar year, divided by the average income of all insured persons, totalled over the individual’s insurance career, multiplied by the age factor to adjust for early or deferred pension claiming.
• Pension type factor: for old age pensions = 1.
• Current pension value: the monthly pension that an average earner would receive after paying contributions for one calendar year.
• Adjustments: yearly adjustment of pension value accounting for changes in earnings (before deductions) and a sustainability factor; no downward adjustment possible.

Taxation and social security contributions

• Pension benefits are subject to income tax (100% for pensions granted in 2040) according to the general tax rules.
• Mandatory contributions for health insurance (shared in parity between retired person and pension insurance carrier) and long-term care insurance (fully paid by retired person).