Working Life > Social Insurance > Social Pension Fund

Social Pension Fund or Public Pension Fund

Definition, Explanation

One possible way of pension insurance is the social pension fund. This fund is defined by the Social Security Code. For working individuals, that is employees and workers and partially freelancers, this insurance is obligatory as a part of statutory social insurances. However, unlike in the private pension scheme, this fund is not working as a personal savings depot for one’s own pension. One’s demand for pension payments is subject to duration and amount of contribution payments. If an individual reaches retirement age, his allowance will be taken from the individual’s amount of contributions. Pension demands are valid at retirement age, in cases of reduction in earning capacity or working incapability or for bereaved persons in the case of death.

The basis of the statutory pension insurance is the so-called Inter-Generation Contract. The working people (employees and workers) pay contributions and therefore finance the payments for current pensioned persons. The monthly contribution depends on the gross income and the rate of contribution. This rate is currently 19, 9 percent of gross income. Using the Contribution Assessment Ceiling, the maximum contribution will be calculated. Usually, 50 percent of insurance contributions are being paid by the employer. With Mini-jobbers the employer pays all contributions. For recipients of sickness allowance, unemployment benefit or interim allowance, funding agencies such as the Federal Employment Office pay all the contributions. Employers and other funding agencies pay the money directly to the pension insurance.

Freelancers and voluntary insured individuals can choose between minimum and a maximum contribution. They have to pay the complete contributions themselves.

Due to the demographic development, the Inter-Generation Contract is no longer functioning. Nowadays there are increasingly more pensioned persons that have to be financed by decreasingly less working individuals. This is why the pension payments are currently financed by insurance contributions and statutory allowances taken from tax revenue.

Compulsory Insured Persons are:

• All employees and workers
• Trainees
• Recipients of sickness benefits, maternity allowance or unemployment benefit I or ALG II
• Non-working parents during parenting.
• All low-income earners (up to EUR 400 per month) that gave up their right to be exempt from paying social security contributions
• Compulsory insured freelancers: craftsmen, artists, publicists. Artists and publicists are being insured within the so-called “Kuenstlersozialkasse“ (Artist’s Social Welfare Fund)
• Civil and Military Duty Servants
• Compulsory insured persons within the „Altenversicherung der Landwirte“
• Clerks, judges and professional soldiers
• Employees with a so-called "beamtenähnlichen Gesamtversorgung" – that is, almost all workers and employees in the sector of Public Service
• Seelotsen (Sea Pilotages)
• Non-working nursing individuals

Services:

• Pensions paid per month
  • Regular pension
    After having reached the age of 67, you may retire and receive monthly payments of pension. If you were born before 1947, you may retire at the age of 65
  • Pension for long-term insured
    If you have worked for 35 years minimum, you may retire at the age of 63
  • Pension for severely challenged individuals
    You may retire at the age of 60 if you have worked for 35 years minimum and if your degree of disablement is above 50 percent
  • Pension after unemployment and partial retirement
    This pension is only available if you were born before Jan 1st, 1952, and if you have worked for 15 years minimum. From 2008 on, the minimum age is 63. This pension has effects on the pension amount. If you were born after Jan 1st, 1952; this pension is no longer available for you
  • Old-Age Pension for Women
    If you were born before Jan 1st, 1952, you may (with discounts) retire at the age of 60, if you have worked (or waited) for at least 15 years and you have paid contributions for 10 years after your 40th birthday. From 2012 on this pension will no longer be available
• Monthly pension due to decreased earning ability, also called Pension for Reduced Earning Capacity
  • Waiting period of at least 5 years
  • Contributions have been paid for at least 3 of the last 5 years
  • Reduced Earning Capacity leads to the same demand for pensions as if the insured person had worked until his 60th birthday
  • The statutory pension insurance is, according to the slogan „rehabilitation before pension“, also financing rehabilitation services to improve or re-improve your ability to work. The medical urgency of such a measure has to be certified by a medical estimate. The conditions pursuant to insurance law have to be given. (see also Rehabilitation through Pension). Apart from medical measure of rehabilitation, support to keep a job or to participate in measures of further education is included alongside interim allowance, travel costs and possibly costs for home help for the duration of the measure of rehabilitation after the continued remuneration has been cancelled
  • The maximum availability is limited to 3 years – a so-called temporary annuity which can be extended if the circumstances remain the same
  • With a partial reduction in earning capacity, that is you could work for more than 3 but no longer than 6 hours per day, you will receive 50 percent of the benefits for reduction of earning capacity. If you do not find a part-time job, you will get the full pension
• Monthly Pension due to Death
  • Widow’s and Widower’s Pension
    As a widow or widower you can receive the big widow’s pension if you are more than 45 years of age, if you raise a child or if you suffer from reduction in earning capacity. You will receive 55 percent of the pension of the deceased. If these requirements are not met, you have the right to receive the small widow’s pension. This amounts to 25 percent of the pension of the deceased and will be given to you for 24 months
  • Child Benefits
    If your ex-marriage partner has passed away and you are raising a child you will receive child benefits if the marriage has been divorce after June 30th, 1977 and you have not been married again
  • Orphan’s Pension
    As the child of a deceased insurant you will receive an orphan’s pension until you turn 18. If you are in an apprenticeship, if you are taking a gap year usually taken to do voluntary work in the social sector or if you are not able to generate income yourself due to disability, the period of time will be extended until you turn 27
  • Compensation
    If you should decide to marry again as a widow or widower, you will receive compensations. This amounts to 24 x the average monthly pension payment of the last 12 months
  • If the deceased has reached a waiting period of 5 years, the bereaved individuals will be taken into account
  • All regulations concerning widow’s and widower’s pension are equal for marriages and civil unions
• potential benefits in terms of health insurance

Requirements:

• The demand for pension is guaranteed by law
• The calculation of the contribution payment is geared to income and contribution rate
• Periods without contribution payments such as periods of unemployment, parenting and apprenticeship will be added to your pension claim
• Generally the employer will pay 50 percent of the pension scheme contribution (with Mini-jobs: 100 percent)

Taxes:

• For employers, pension insurance contributions are free of tax
• Taxation is done downstream, that is the contribution payments will not be taxed, while pension payments will be taxed
• Since 2005 a new taxation has been introduced stepwise. This change of taxation will be completed in 2025
• In 2008, 66 percent of the payments are free of tax. Due to the employer’s tax exemption, only 16 percent of the employee’s contribution can be asserted
• Every year this percentage rate is growing by 2 percent, with 100 percent being reached in 2025
• The tax exemption is valid up to the maximum. In 2025, these maxima will be EUR 20.000 for singles and 40.000 for married persons. In 2008 the maxima are EUR 13.200 and respectively EUR 26.400. At a maximum of 13.200 per year, 6.600 will be provided by the employer. On these the employee can assert 16 % (1.056) as special expenditures
• A test by your local financial authority will determine if you have been privileged with regards to the law of 2005. The higher amount of money will be acknowledged

Tips, Checklist

• Care about your personal insurance account at the statutory pension scheme as early as possible. Make sure that apprenticeship, maternity protection, reduced earning capacity and unemployment are included
• At the age of 27, yearly pension information will be sent to you which will include your current calculated pension claims from the age of 65 on
• At age 54 you will receive pension information including pension claim data, discounts at an earlier retirement, extra income limitations in terms of old-age pension and pension for reduction of earnings capacity
• Payments for measures of rehabilitation must be claimed at the appropriate Social Security Administration
  All kinds of pensions must be claimed actively in oral or written form or online
• As a pensioned individual you must apply for health and nursing insurance. You will have to pay 50 percent of your health insurance contributions and 100 percent of your nursing care insurance contributions. The remaining 50 percent of your health insurance will be provided by the pension scheme and will be given to the insurance agency directly
• Please note that you might reduce your pension claims by working sideline
• Reclaim your contributions if you will not reach the required waiting period of 5 years.
• Do not just rely on the statutory pension scheme. It is a system of allocation and no private pension insurance with interest rates. Make sure you do private pension insurance or take care of your company pension. These measures will avoid income losses at retirement age

Last update: 06/22/2010