The idea of pension insurance in Germany is the same as in many other countries: every person receiving income is obliged to pay pension contributions to the state fund, from which a certain amount will be paid once a month in old age. Currently, state pension insurance contributions account for 18.7% of monthly gross income. But the employer must pay half of the amount. As a result, 9.35% is subtracted from the gross salary. The amount is withdrawn when calculating salaries, so there is no need to worry about where and how to transfer money.
Pension insurance in Germany
The retirement age starts differently for everyone in Germany. There is a special scale where the retirement period is calculated depending on the age. Young people, including myself, have to work until they are 67 years old. Older people retire between 65 and 67. It is allowed to retire earlier or continue to work after reaching retirement age. I didn’t know exactly what will happen in this or that case with the amount of payments, but such details can be found out later. Now they are discussing the possibility of working until the age of 80, but with salary restrictions and only for those who wish it.
After five years of continuous pension contributions, provided that the payer is over 27 years old, the fund sends a solemn letter announcing that the employee is now entitled to a German state pension. It indicates what the pension will be if you quit working right now, if you continue to work for the same salary until you reach retirement age, and if you maintain the current rate of salary growth. Very good parameters, I must say! Everything becomes clear at once. If a person continues to pay contributions, each year the foundation sends out new achievement numbers.
The pension system remains a fundamental tool for preserving the income of older Germans. In the future, it is expected to introduce a minimum rent, stabilize contributions to funds and payments to pensioners, improve conditions for retirement in case of disability, and further develop pension insurance.
Indexation of German Pensions
It is clear that if you count only in money, this will help little. Under capitalism, the state of the economy is considered healthy if inflation is observed at 1-4% annually. Money is constantly depreciating and losing purchasing power. As a result, 100 € now at 1.5% inflation in 30 years will be equal to 60 € today.
They fight it like that. Each year a salary is set, which is considered the “average” for Germany. For example, in 2016 this value was 36267 €. Pension contributions from this salary are accepted for 1.0 – unit. Further, the salary of each employee is converted into these units, and thus, in relation to the ratio of his salary to the “unit” salary, it is calculated how many units he earned. I have earned 20 pension points in 14 years of work in Germany.
Further, each year the point value is set in euros. Moreover, in the “old” lands of the former FRG, the points are more expensive than in the “new” former GDR. For 2016 in Baden-Württemberg, 1 pension point costs 30.45 €.
No later than 2024, pensions in the west and east will be equal. The current estimate of the pension level depends on the minimum wage levels in the east and west.
The rationale for this policy is an increase in income levels. Older people must share the growth of wealth with younger people. Pensions are going to be indexed annually.
I with 20 points, if I retired right now, would receive 600 €. But I have to work for another 30 years, I hope I will earn something more significant.
Other ways to get a pension in Germany
It so happens that a person cannot work for health reasons. In this case, he has the right to submit a request for early retirement, and the number of his points increases. This process is very difficult, it is necessary to prove a complete loss of working capacity. If a person can work somehow, then most likely he will not receive a pension early.
It’s not just work that brings points to retirement insurance. Also, certain charges are made for caring for relatives, for raising children , and serving in the army. Even if a person has lost his job and is looking for a new one, the state will pay contributions to the pension insurance during the year.
German retirees abroad
Interestingly, it is allowed to receive a pension while living abroad. Once I saw a TV program how German retirees went to live somewhere in Africa and lived there in retirement, like local barons. But the bulk of the elderly continue to live in Germany, although not everyone has enough money. Moreover, many continue to work further, just not for a full day. After all, the old people are quite strong here.
Since 2000, the number of German retirees living permanently abroad has grown from 1.1 million to 1.5 million. Every seventh pension paid by the German state pension fund goes abroad.
Most – 26 thousand pensions – are transferred to Switzerland. This is followed by the United States and Austria with 24,300 pension payments. Germany transfers money to recipients of pension payments in 150 countries around the world.
A representative of the German pension fund explained that the increase in pension payments abroad is largely due to the return to their homeland of retired immigrants. Pensions are often transferred to Italy, Spain, Greece, the countries of the former Yugoslavia and Turkey.
Those wishing to earn German rent and return should take into account that the amount of money is indexed according to the income level of the country where the pensioner permanently resides.
Criticism of the pension system
At the moment, the German pension system is shaking. The nation is aging, there are more and more elderly people, and fewer and fewer workers, including due to the crisis. In the German media every now and then it is discussed whether it is necessary to increase pension contributions or not.
The last increase in pensions took place in 2018: 3.2% in the west, 3.4% in the east. The level of pensions in the eastern lands reached 95.8% in the western ones. But overall, the purchasing power of German retirees has fallen over the past 10 years.
One of the proposed solutions that I like is to attract qualified young people to Germany so that they work and provide the Germans with old age. They play on this subtlety: they propose to limit the stay of working foreigners to five years. Indeed, according to the law, those who have worked in Germany for less than five years do not count on a German pension. True, it is supposed to return the self-paid part of the pension contributions, the same 9.35% of the salary. But the part that is paid by the employer is not returned to anyone else.
I came to Germany under the GreenCard program for programmers, according to which I was also supposed to leave the country in 5 years. But already in the third year of my stay, I received a normal work visa, because the “green card” had already been canceled by that time. Now the EU Blue Card has been introduced on even more loyal terms to foreigners. Permanent residence can be obtained in 21 months.
Opponents of the idea say that the newcomers will oust the Germans themselves from the market, especially since the number of jobs is decreasing against the backdrop of the refugee crisis. As a result, that part of the people who will be left without work will live on what the others earn and everything will remain the same.
Economists say that those who work at the moment will not be able to receive a high pension. Therefore, many recommend not hoping too much to provide old age with only pension contributions.
Number of seniors in Germany
Germany ranks first among European countries in terms of the number of elderly people living and second in the world.
According to the Federal Statistical Office of Germany, as of 2017, 18 million burghers 65 years and older live in the country. This is every fifth inhabitant, and in the future this figure will only increase. By 2060, it may reach 24 million.
Over the past ten years, the share of working pensioners aged 65-69 has doubled. The difficult financial situation is not always the reason, many continue to work voluntarily. But poverty in Germany has also affected the elderly. Half of the 8.5 million pensioners receive less than 800 euros a month.
Burgers who are not experiencing financial problems in old age show a craving for everything new. Last year, 15,000 elderly students were registered at German universities. Even new technologies don’t scare retirees. Although social networks play a secondary role, older people have started to use the Internet more actively: to book trips, receive information, communicate with loved ones.
Researchers have identified a recipe for the longevity of the Germans: a healthy diet with lots of vegetables and a little meat, avoiding cigarettes and alcohol prolong the joy of life. Another factor is a positive attitude towards age. Pensioners unanimously believe that having fun, being active, and being with friends and family makes life fulfilling.