Guest Houses in Germany

Pensions in Germany are based on a „three pillar system“. [1]

  • First pillar: mandatory state pension insurance ( gesetzliche rentenversicherung ). This part of the basic social security system. All employees and employers pay a percentage of wages into this system.
  • Second pillar: Voluntary Occupational Pension Insurance
  • Third pillar: private insurance

Mandatory state pension provision

The scheme is based on the pay-as-you-go (or redistributive) model. Funds paid in by contributors (employees and employers) are not saved (or invested) but are used to pay current pension obligations.

Civil servants in Germany do not pay any contributions but their wages are correspondingly lower than those in the private sector.

Recent changes to the system means that it will be increased by one month per year reaching 66 in 2023. [2] From 2023 The Future Will Be Increased by Two Months to Each Year 67 in 2029. Each missing year results in a 3.6% reduction in pension entitlement.

The state scheme is financed by a payroll tax known as „social security contributions“. The rate in 2012 is 19.6% of the social security contribution ceiling of € 67,200 (Western Bundesländer ) and € 57,600 (Eastern Bundesländer ). The amount is paid half and half by employer and employee contributions.

The amount paid to withdraw is based on average salaries. The German pension insurance agency publishes the value of each year’s contribution. This is then multiplied the number of years contributed and the percentage of the average salary earned during the person’s lifetime. The average pension in 2012 was € 1,263.15 per month. The maximum pension for someone having earned the average salary (€ 64,200) would be € 2,526.30. [3]

Voluntary occupational pension provision

The Voluntary Occupational Pension Schemes ( Betriebliche Altersvorsorge ) were created under the Company Pensions Law ( Betriebsrentengesetz ) in 1974 [4] and are a benefit granted by a company to its employees. Voluntary schemes can fall into different categories: [5]

  • Defined benefit ( Leistungszusage )
  • Defined Contribution ( Beitragsorientierte Leistungszusage )
  • Contribution with minimum benefit

The schemes can be structured in various ways:

  • Direct Grant ( Direktzusage )
  • Support Fund ( Unterstützungskasse )
  • Pension Company ( Pensionskasse )
  • Direct Insurance ( Direktversicherung )
  • Pension Fund ( Pensionsfonds )

In 2009 contributions up to € 2,500 ( Betriebsbemessungsgrenze ) were tax free. A further € 1,800 in contributions to Direct Insurance schemes are tax free. About 50% of workers in Germany are covered by these schemes. [6]

According to the Deutsches Institut für Zeitwertkonten und Pension Lösungen , a consultancy, „in almost all firms, 30 to 50% of the capital required to meet the commitments made in the past. The Germans have invested 500 trillion euros in Voluntary Occupational Pension and 170 to 225 trillion euros are needed to fill the coverage gap. [7]

Private provision

Private pension schemes in Germany are private funded pensions. The funds are protected by law and can not be seized by creditors. They are also not inheritable. Payments into the funds benefit from a tax credit of € 154 per year for an additional $ 300 if the fund beneficiary has children. The most popular form of private pension is the so-called Riester-Pension . The annual cost of the tax is € 7bn.

It is worth noting that you can take early retirement in Germany if you agree to a percentage of your state pension.

See also

  • UK pensions
  • US pensions
  • Pensions in France
  • Pension system in Switzerland
  • Sozialgesetzbuch


  1. Jump up^ Aegon, ‚Pension provision in Germany: the first and second pillars in focus‘
  2. Jump up^$File/Juergen%20Meierkord%20-%20Pension%20Reform%20and%20the%20Role%20of%20Public%20Pensions % 20for% 20Old Ages% 20Income% 20Security% 20in% 20Germany.pdf? OpenElement
  3. Jump up^
  4. Jump up^
  5. Jump up^
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  7. Jump up^ title = 100 Milliarden Euro gesucht | Last = Henrich, Kamp | Fist = Anke, Matthias | publisher = VerlagsgruppeHandelsblattGmbH | newspaper =Wirtschaftswoche| date = November 25, 2013