The German Retirement and Pension System - Basic Facts
Updated - May 2019
- The Public Retirement System - Basic Facts
- The Public Retirement System - additional details
- Company Plans
- Individual Retirement Investment
- Special Section - Refund of Retirement Contributions
Ever since Germany established its first Social Security system in 1889, the public retirement insurance has been "pay-as-you-go", with the current pensions of the retired paid from the current premiums of the not yet retired. Currently about 85% of the work force is enrolled in the Public Retirement Insurance (gesetzliche Rentenversicherung GRV). Civil Servants, who make up about 9% of the work force, have their own pension system and the self-employed, who make up about 9% of the work force, are mostly self-insured (but are allowed to participate in the GRV.)
There are three pillars to the German retirement system; 1) the government-run Retirement Insurance system, 2) private company plans and 3) private individual retirement investments.
The Public Retirement Insurance System (also referred to as Statutory Pension Insurance), which also includes survivor and disability benefits, has been dominant. Participation is mandatory for employees, with each worker assessed for a sum based on annual earnings. Premiums are deducted by the employer, with the employee paying half and the employer half. In 2019 the premium is 18.6 percent of the gross monthly wage or salary. This is assessed on monthly incomes up to a maximum of 6,700 euros (80,400 euros a year) in the west and 6,150 euros (73,800 euros a year) in the east. Retirement now normally begins at age 65 plus seven months though it is to be gradually increased to 67 by 2029. There are a number of ways that early retirement can start – for example at age 63 if a person has contributed to the system for 45 years. Those who have contributed for at least 35 years can also take early retirement but will have a slightly reduced benefit. Conversely, a person can continue to work after reaching retirement age. This will have the effect of increased benefits when the decision to retire is finally mad.
Contributions to the plan are also to be increased to about 20% by 2025. There are no minimum or maximum amounts paid. The overall pension payment for which a person is eligible is calculated by the number of years of contributions to the state pension system, age and average income. English language information about the German Public Retirement System can be found at www.deutsche-rentenversicherung.de.
Additional details about Statutory Pension Insurance. The basic and very important building block for retirement provision is the statutory pension insurance in Germany. All employees and also some groups of self-employed persons are compulsorily insured by law. In addition, there are also claims for retirement for the time spent child rearing.
If you have worked and paid contributions in Germany for more than 60 months, you will receive a German pension after reaching the official German pensionable age. In addition to the periods of contributory employment, many other periods are considered, including:
- Child-rearing (until three years of age)
- Child raising period (up until 10 years of age)
- Schooling and university after the age of 17
- Training periods
- Times of illness and unemployment
- Times caring for relatives
For some of the times mentioned, compulsory contributions from government agencies will be paid to you in Germany, resulting in pension claims. The other periods have a positive effect on the calculation of the pension.
For example, if you raised two children in the first three years of their life in Germany while you were living in Germany (at least 60 months), you are entitled to a German pension without having had to work in Germany.
All nationals of the EU and EEA countries are treated equally to German nationals. This means that, even after leaving Germany, there is the right to continue paying voluntary contributions to the German pension. This can be useful, for example, if only a few months are missing in order to receive a German pension in old age.
In many countries, there are agreements on pension insurances, when those periods that do not qualify for a pension in Germany, are taken into account in those other countries.
For all non-EU nationals who have paid into the pension for up to 60 months or other periods of recruitment (see above), the contributions to pension insurance can be reimbursed 24 months after departure.
If the pensioner dies, the survivor may be entitled to a widow's pension or contributory allowance.
For a future pension or for the contribution reimbursement, all periods relevant for the pension must be entered in the pension account. This process is called "contoclimation" and can be carried out at any time for all periods in the past. The account statement can also be repeated if it is found later that the relevant periods for the pension are missing, or proof of such a period is only possible at a later date.
If you have any questions about the German pension, your pension insurance company can help you directly, although it is mostly in German. You can also get advice from pension advisors and specialized lawyers.
Company Plans (bAV betriebliche Altersvorsorge) have traditionally been designed to supplement Retirement Insurance, and now will play a greater role in taking up the slack. Government tax breaks and subsidies will encourage companies and employees to invest in private plans. Though company plans are not compulsory, they cover about three-fifths of the working population, a percentage that is expected to grow. Pensions on company plans usually also commence at age 65, though this is likely in many cases to follow the Retirement Insurance practice and increase gradually to 67.
The third pillar, individual retirement investments, have not been very significant up to now, but have recently been getting a lot of attention as supplements to the Public Retirement Insurance. These private plans include (but are not limited to) the Riester and Rürup plans. Workers and other participants can get certain tax advantages and benefits from government subsidies for these plans. The benefits and other details vary from plan to plan. There are differing payment methods, payout schemes, tax liabilities, portability opportunities and other factors that distinguish these plans from each other. Certain plans may be better for different individuals depending on their particular situation.
Expatriates living in Germany can participate in all these plans. It may be possible to pay premiums to, and get benefits from, private pension plans even after having left Germany. Benefits from company plans usually can be received outside of Germany, though premiums are not always refunded. If an expat qualifies for a pension under the Public Retirement Insurance it can be paid to them even if they do not live in Germany. Laws and regulations may vary from country to country regarding collecting a pension from Germany or any other country. You should check with the pension authorities in your country of residence to see if a German pension would have any effect on any pension you may have earned in that country.
There are many complicated details to the pension system; means of determining the amount of pensions, provisions for early retirement, increased retirement benefits for staying on the job beyond 65, etc. The best way to find what plan is right for you is to consult a financial advisor.
The additional details of the Statutory Pension Insurance were contributed by Susanna Regenbogen. She is an audited expert in pension law, according to § 4 RDV and a freelance employee at Pensionservice Gregor.
Refund of Retirement Contributions
If you are a US, Canadian, Australian citizen or a citizen of a non-EU country, you may be eligible for a refund of your contributions if you contributed for less than 60 months and more than 24 months have transpired since your last required contribution and you have moved home or to a non-EU state.
According to a brochure from the Deutsche Rentenversicvherung Bund (German Retirement Fund), your compulsory contributions can be refunded to the full amount and your voluntary contributions can be refunded up to 50 percent. Contributions by your employer will not be refunded.
It may also be possible to collect your retirement in the US, Canada or other countries from Germany once you reach age 65. British citizens have different options, given both countries are EU member states. According to the Deutsche Rentenversicvherung Bund, you are not eligible for a full payout if you are still required to pay social security taxes into another EU state's system, i.e., Great Britain. If, however, you made contributions for less than five years, you are eligible for a full payout upon reaching age 65. Otherwise, it seems another possibility is to combine your British and German social security payments upon reaching retirement age.
Obviously, while this is how we understand the information from the Deutsche Rentenversicherung, these are questions that can only be answered completely by a lawyer or an accountant.
You can also visit their English language website page on this topic by clicking here.