Retirement age in Germany and its benefits
Historically, German retirees have enjoyed the benefits of a generous state pension system. However, with an aging population and a pay-as-you-go system in which the working population supports retirees, it has become necessary for individuals to explore alternative retirement strategies beyond relying solely on public pensions in Germany. Despite these challenges, Germany’s pension system consistently ranks highly among global pension systems and has seen continuous improvement as the government works to reform and streamline the process.
To ensure the long-term efficiency and affordability of the pension system, the German government has implemented several reforms since 2002 in response to the aging population and growing pension obligations. These reforms include a gradual increase in the statutory retirement age and a reduction in the maximum state pension. This blog post aims to delve into the complexities of the German state pension system and provide valuable insights and guidance for those seeking a secure and worry-free retirement.
German state pensions: The 3 pillars
The pension system in Germany is specifically designed to provide financial support to retirees to ensure a comfortable standard of living during their retirement years. This comprehensive system consists of several elements, including the state pension, occupational pension and private pension schemes.
It is essential for expats and foreign nationals living in Germany or receiving German pensions to understand the intricacies of the German pension system in order to navigate it effectively and make the most of its benefits.
Pillar 1: The German Statutory Pension Insurance Scheme
The The pension system in Germany is based on a three-pillar model that provides a variety of financial security options for retirees. The first pillar, known as the German state pension (Gesetzliche Rentenversicherung), is a mandatory program administered by the government.
It is funded by contributions from employees, employers and the government itself. The state pension provides various benefits, including retirement, disability, and survivor benefits.
Upon reaching retirement age, individuals are entitled to receive the National Pension Insurance (NPI) benefit, which provides a basic payment equal to approximately 70 percent of their net earned income. In addition, there is a safety net to support low-income retirees.
Since 2005, all regional and local branches of the pension system in German have been consolidated under the single name “Deutsche Rentenversicherung”. This consolidation streamlines the administration and management of the public pension program throughout the country.
Pillar 2: Company pensions
The second pillar of the German pension system consists of company pensions (betriebliche Renten), which are employer-sponsored pension plans that supplement the state pension. Many German companies offer these plans as part of their employee benefits packages. While employers are not required to offer a pension plan, government subsidies and tax incentives make them an attractive option for both employers and employees.
There are five main types of occupational pension schemes in Germany:
- direct insurance,
- direct grant
- relief fund
- pension company
- pension fund
Each system operates differently, but all aim to provide employees with additional retirement income.
Company pension contributions generally range from 3 to 15 percent of an employee’s gross monthly salary, with the employer usually deducting these contributions directly from the employee’s salary and paying them into the pension fund. Since these contributions are made before income tax is applied, employees enjoy a tax advantage.
Employers often make matching contributions to supplement employee contributions. The amount of pension an employee can access at retirement depends on the length of time he, she or they have contributed to the plan and his or her salary during his or her working years. It is important to note that company pension payments are subject to taxation.
To protect employees’ retirement savings, the German government has enacted laws that guarantee contributions to company pension plans even if the company becomes insolvent. This ensures that employees’ retirement savings remain secure and protected.
Pillar 3: Private pension Germany
The third pillar of the German pension scheme encompasses private pension plans (Private Altersvorsorge) provided by banks and insurance companies. These plans have gained significant popularity since their introduction in the early 2000s. The federal government offers bonuses and tax incentives to incentivize individuals to contribute to these private pensions. The two primary types of private pensions in Germany are the Riester Pension and the Rürup Pension.
The Riester Pension
The Riester pension, which was introduced in 2002, serves as a supplement to the state pension in Germany. It is available to employees who pay German income tax, self-employed persons who contribute to the state pension, recipients of unemployment benefits, conscripts, civil servants and persons with permanent disabilities. To qualify, contributors must invest at least 4% of their annual income, with the government providing additional bonuses and tax deductions.
The Rürup Pension
The Rürup pension, introduced in 2005, is specifically designed for people who do not contribute to the state pension system and do not qualify for the Riester pension. This includes the self-employed, freelancers and high earners.
While the government does not offer bonuses, it does offer tax incentives for contributions up to 26,528 euros per year in 2023. Benefits from Rürup pensions are guaranteed for life, but cannot be transferred or inherited after the contributor’s death.
How are state pensions funded in Germany?
The German state pension system, also known as the Statutory Pension Insurance (RV), relies on mandatory contributions from employees and employers to ensure the financial stability of the system and to provide pensions to retirees.
Participation in the RV is mandatory for all individuals employed in Germany, including many self-employed individuals.
The calculation of contributions is based on annual earnings, with each participant obligated to contribute 18.6 percent of their net salary. This percentage is evenly split between the employer and the employee, with both parties contributing 9.3 percent up to a maximum contribution limit referred to as the contribution ceiling.
From 2023, the monthly contribution ceiling will be set at 7,300 euros in the western states and 7,100 euros in the eastern states. This difference is due to historical differences in wages between the former GDR and the western states.
The federal government has pledged to equalize these contributions by 2024 to create a more uniform pension system across the country.
When individuals enroll in the public pension system, they are issued a unique social security card with a social security number. In German “Sozialversicherungsnummer”.
This identification number is essential for tracking an individual’s pension contributions throughout their working life. Employees must provide this number to their employer to ensure accurate recording and allocation of pension contributions when starting a new job.
In summary, the German public pension system is primarily funded by compulsory contributions from employees and employers. This funding ensures the sustainability of the system and supports the provision of pensions to retirees.
Who qualifies for the retirement benefits in Germany?
The German state pension system is designed to be inclusive and provide benefits to a wide range of individuals.
To qualify for a pension, you must have worked for a German company for at least five years and have reached the retirement age in Germany.
However, even if someone has been employed for less than five years, he/ she/ they may be entitled to a refund of social security contributions.
If you are interested in this topic, I recommend you our blog post about how to apply for a pension refund in Germany
You may be entitled to a German state pension even if you haven’t paid contributions to the state pension fund. There are certain circumstances that may make you eligible for a pension. Some of the eligibility criteria include
- Individuals with disabilities who have worked in a disability-specific position for a minimum of one year.
- Members of spiritual societies, such as deaconesses.
- Self-employed individuals and freelancers, including artists, coastal fishermen, and midwives.
- Parents who are actively raising a child.
- Some volunteering caregivers.
- Periods of sustained unemployment or illness.
- Time spent caring for relatives.
- Time spent working in other EU countries.
- Education and training periods.
These circumstances highlight that eligibility for a German state pension extends beyond traditional employment and can encompass various life situations. It is important to explore your individual circumstances and consult with the German Pension Insurance to determine your specific eligibility for state pension benefits.
Use our digital service to submit your pension application from anywhere in the world. We give you personal and individual support.
In summary: To qualify for a German state pension, you must have worked in Germany for at least five years and paid into the social security system. Certain states have different rules, so you may need to work much fewer months in Germany to qualify for a pension. You must also have reached the legal retirement age to qualify for a pension. To find out when this is, see the section below. “When will I reach retirement age in Germany?
The amount of your pension will depend on the contributions you have made during your working life in Germany. The German pension is designed to be accessible and inclusive, so that many people can benefit from it.
When will I reach retirement age in Germany?
The retirement age in Germany has been changed to reflect demographic changes. The retirement age in Germany gradually increased based on birth cohorts. Here’s a breakdown of the retirement age based on birth cohorts:
- Individuals born between January 1, 1947, and December 31, 1958: The previous retirement age of 65 has been gradually increased.
- Individuals born between 1959 and 1963: The retirement age has been raised by two months per year.
- Individuals born after January 1, 1964: The retirement age in Germany is set at 67.
Early retirement pension
An early retirement pension may be claimed at age 63 if the individual has at least 35 years of qualifying pension contributions.
However, the amount received is reduced by 0.3% for each month before the legal retirement age.
Persons with severe disabilities may be eligible for an old-age pension if they meet certain criteria, with the full pension age gradually increasing for those born in 1952 and later.
To receive a full retirement pension, you must be at least 63 years old and have completed 45 years of qualifying service. The retirement age for this pension is gradually being raised to 65 for those born before December 31, 1952.
Special rules apply to miners, with the retirement age gradually increasing for those born after December 31, 1952. For those born after January 1, 1964, the age limit is 62.
Retirees may apply for partial retirement or postpone the start of their retirement. It is advisable to consult with the pension fund before taking up employment as an early retiree.
In summary, the retirement age in Germany has been adjusted to reflect demographic changes, with the standard age set at 67 for those born after January 1, 1964. There are different rules for early retirement, people with disabilities, and specific occupations such as miners, with age thresholds tailored accordingly.
Use our digital service to submit your pension application from anywhere in the world. We give you personal and individual support.
How much is the German state pension?
The amount of the German state pension you will receive is determined by your contributions over your working life. Each year of contributions at the average earnings level of all contributors (43,142 euros in 2023) will earn you one “pension point” (Entgeltpunkt).
Contributions based on lower or higher earnings will earn you proportionately fewer or more pension points. When you reach retirement age, the total number of pension points you have accumulated will be used to calculate your pension benefit.
The minimum pension in Germany: Basic Pension (Grundrente)
The basic pension supplement is not a separate benefit, but a supplement to the existing pension. It is paid together with the statutory pension. The amount is determined on an individual basis. The Basic Pension Act came into force on January 1, 2021. According to the Federal Ministry of Labor and Social Affairs, about 1.1 million basic pension supplements are currently being paid. The supplement amounts to an average of 86 euros per month.
Essentially, individuals who have contributed to the system for at least 33 years (including years of work and time spent raising children or providing unpaid care) will receive an additional supplement to their regular pension to ensure a basic standard of living. The basic pension is calculated and paid automatically, so there is no need to apply for it separately. If you are interested in learning more about the basic pension, you can find detailed information on the German Pension Insurance website: https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Grundrente/grundrente.html
Compulsory Pensioners’ Health Insurance
When you receive your German pension, you are generally required to enroll in the statutory pensioner health insurance. The government provides an additional contribution, which is deducted directly from your pension.
The exact amount you pay for health insurance is determined by your pension benefits, ensuring that your insurance costs are proportionate to your retirement income. This system ensures that retirees have access to comprehensive health care while taking into account their financial situation
How to calculate the retirement benefits in Germany?
There are several factors that contribute to the calculation of your German old age pensions. Here’s a breakdown of each component and how they are used in the calculation:
- Pension Points: For each year of employment and contributions to public pension insurance, you earn pension points. The number of points is determined by your gross income. The average income earns one pension point, and the maximum annual limit is 2.17 points in 2022.
- Access Factor: The access factor is based on the age at which you retire compared to the Normal Retirement Age (67 for those born after 1966). If you retire at 67, the access factor is 1. If you retire early, the factor decreases by 0.003 points per month, and if you retire late, it increases by 0.005 points per month.
- Pension Value: The pension value represents the monetary value of one pension point and is adjusted annually. In 2022, the pension value will be €36.02 for West Germany and €35.52 for East Germany.
- Pension Type Factor: This factor varies depending on the type of pension you receive, such as a regular retirement pension, disability pension, widow(er)’s pension, or orphan’s pension.
To calculate your monthly pension, you can use the following formula:
Monthly Pension = Pension Points × Access Factor × Current Pension Value × Pension Type Factor
Understanding each component and applying the formula can help you estimate the amount of your German state pensions. It’s important to note that this is a simplified explanation and actual calculations may include additional factors.
Ready to unlock your German pension benefits? Contact us today to get started!
Where can I get my pensions from Germany?
Once you reach the legal retirement age in Germany, you are eligible to receive your state and private pension benefits even if you reside outside Germany.
However, it is important to note that there may be restrictions on claiming a company pension from abroad, so it is advisable to check your employer’s policy. The amount of your pension will depend on the length of your contributions.
The Deutsche Rentenverwsicherung normally pays your pension into a German bank account. From there, you can transfer the money to your foreign bank account. They also cover the cost of the transfer.
If your bank is in one of the SEPA (Single Euro Payments Area) countries, you can have your German pension paid directly into your account.
It’s important to note that moving to another country may affect the amount of your pension. The taxation of your pension is subject to the agreement between Germany and your country of residence. If you are planning to move out of Germany, we recommend you to contact the German Pension Insurance to understand how this may affect your future pension benefits.
You can also use our digital service. We can help you with your pension application no matter where you are.
However, it is common for expats to lose track of their pension rights when moving between countries. It is therefore advisable to stay informed and maintain contact with the relevant authorities. Ensure that you receive the pension benefits to which you are entitled.
Pension in Germany for Foreigners
Foreigners working in Germany have the opportunity to participate in the German pension system and benefit from its provisions. However, you must meet certain requirements and it is advantageous to understand the pension application process. In general, foreigners working in Germany are required to contribute to the state pension system.
In order to qualify for a German state pension, individuals must complete a minimum contribution period of five years, also known as the “qualifying period,” and reach the statutory retirement age. The legal retirement age is gradually increasing from 65 to 67, depending on the year of birth.
If you do not meet these requirements, you may be able to claim a refund of your pension contributions before you reach retirement age.
This allows individuals to receive an early lump sum payment equal to 9.3% of their gross earnings.
For more information on the pension refund process, please see the following blog post: Who can get a pension refund when leaving Germany
In conclusion: foreign nationals who have contributed to the German pension scheme but move to another country may still be eligible to claim their pension benefits from abroad. The process for claiming pensions from abroad may vary depending on the country of residence and the existence of reciprocal agreements between Germany and the foreign country. These agreements facilitate the coordination of pension benefits and ensure individuals retain their entitlements when relocating across borders.
Can I receive a state pensions in two different countries?
It is possible to receive pension benefits from two different countries. Especially if you have worked and contributed to pension plans in both countries. This is a common scenario for expatriates and individuals with a work history that spans several countries. Here are some important points to consider when it comes to receiving pensions from two different countries:
Many countries have bilateral social security agreements, often called totalization agreements. These agreements are designed to coordinate pension benefits for individuals who have worked in both countries. They help prevent double taxation and ensure that individuals can benefit from the pension systems of both countries. It is important to check whether the countries in which you have worked have such agreements.
To receive pension benefits from two different countries, you must apply for each pension separately. Each country has its own application process and requirements. It is important to follow each country’s procedures and provide the necessary documentation to support your work history and contributions in that particular country.
Payment of Pensions:
Typically, each country will pay the portion of your pension based on your contributions and work history in that country. You may have the option to receive payments directly into separate bank accounts in each country. Or there may be arrangements that allow you to receive payments in one country.
Taxation of Pensions:
The taxation of pension benefits from two different countries depends on the tax laws and treaties between those countries. It’s important to understand how your pension benefits are taxed in each country and whether any tax relief measures apply to avoid potential double taxation.
Keeping Track of Your Pensions:
As you move between countries, it is important to keep records of your employment history, pension contributions and any correspondence relating to your pensions. This will help you keep track of your pension rights and ensure you receive the correct benefits from each country.
Given the complexities of managing pensions from multiple countries. We highly recommend that you seek advice from qualified professionals or contact the relevant social security authorities in each country. They can provide personalized guidance and help you navigate the specific rules and processes associated with receiving pensions from different countries.
Keep your Pension account up to date
It is important to check your German pension account regularly. First, it ensures the accuracy of your contributions, or “contribution periods,” and guarantees that your employment-related contributions are correctly documented, as discrepancies can alter your retirement benefits.
In addition, it’s important to verify that life events: Unemployment, child-rearing and education are accurately recorded, as they affect your retirement benefits. This vigilance helps to catch errors early and prevent future complications when claiming your pension. In addition, knowing your current pension status helps you plan effectively for retirement and stay informed of any regulatory changes in the pension system.
To effectively manage and track your German state pensions we recommend that you keep all employment-related documents, including pay stubs and contracts, and regularly compare them with the data recorded in your insurance history.
How do I claim my German pensions stap by step?
To claim your German state pensions, follow these steps:
1. Determine your eligibility:
Make sure you have completed the qualifying period, which usually requires at least five years of contributions to a German pension plan. Consider both your contribution and supplemental periods. Have you also reached retirement age in Germany?
2. Gather necessary documents:
Gather all relevant documents. Including your Social Security number, proof of identity, employment history, and any additional information regarding your contributions to the German pension system.
3. Contact Deutsche Rentenversicherung:
Get in touch with Deutsche Rentenversicherung, to inquire about the necessary steps and forms for claiming your pension. You can find their contact information on their website and the application forms and other important information here: Application forms
4. Fill out the application forms:
Complete the required application forms provided by Deutsche Rentenversicherung. These forms will ask for your personal details, employment history, and bank account information for pension payments.
5. Submit the application:
Send the completed application forms along with the necessary supporting documents to the appropriate office of Deutsche Rentenversicherung. Keep copies of all documents for your records.
6. Await a decision:
Once you have submitted your application, the Deutsche Rentenversicherung will review it and determine your pension eligibility and the amount you will receive. So this process can take several weeks or months, and it’s important to be patient.
7. Start receiving your pension:
Upon approval, your pension payments will begin at the designated start date. The deutsche Rentenversicherung makes payments typically on a monthly basis and deposit it directly into your bank account.
However, it’s important to note that the application process can take some time. Iit’s wise to start preparing and gathering the necessary information well in advance. In addition, seeking assistance from a pension advisor or contacting Deutsche Rentenversicherung directly can provide further guidance and ensure a smooth application process.
Ready to unlock your German pension benefits? Contact us today to get started!