The statutory pension insurance (“gesetzliche Rentenversicherung”, GRV), which is regulated in the Social Code (SGB VI), protects its insured persons in case of endangerment or reduction of earning capacity, in old age as well as in case of death their survivors.
There are different pension types:
- old-age pension
- pension for reduced earning capacity
- pensions due to death for survivors as widow’s pension
- orphan’s pension
- child-raising pension.
In addition to pensions, it also pays rehabilitation benefits and supplementary benefits, contributions to health insurance and long-term care insurance. The statutory pension insurance is an insurance for all. Anyone can join it.
The statutory pension insurance is one of the five pillars of social security in Germany.
The statutory pension insurance
The largest provider of German statutory pension insurance is Deutsche Rentenversicherung Bund. At its locations in Berlin, Gera, Brandenburg and Würzburg, 15,000 employees look after around 23 million policyholders and almost ten million pensioners in Germany and abroad.
The headquarters of the German statutory pension insurance is in Berlin. However, all the threads come together in Würzburg. This is where the “Data Office of the Pension Insurance Institutions” (“Datenstelle der Träger der Rentenversicherung”) is located, which, among other things, assigns insurance numbers.
Furthermore, this location is the data acceptance and distribution point to ensure the exchange of data between the statutory pension insurance institutions. Würzburg is also the interface to the local authorities, the family and social courts and the financial administration.
There are two types of insured persons:
- the compulsorily insured
- the voluntarily insured.
Compulsorily insured persons are persons who are employed for remuneration or for their vocational training. Compulsory insurance is, as the name tells, a compulsory insurance, it cannot be excluded verbally or in writing. The contribution to the statutory pension insurance is based at most on the amount of the contribution assessment ceiling. Even those who earn more than this remain subject to compulsory insurance, unlike in the case of health insurance.
The purpose of voluntary insurance is to give everyone who does not already belong to the statutory pension insurance as a compulsorily insured person the opportunity to build up sufficient provision for themselves. In addition to the statutory pension insurance, many people consider or need to make private provision for old age, e.g. through investment or life insurance, which can then also be structured as a private pension insurance. The 2001 pension reform introduced state subsidies for expenses for occupational and private retirement provision.
The financing of the statutory pension insurance has three bases:
- the contributions of the insured
- the employer
- the federal subsidy.
By far the largest part of the expenditures is covered by the contributions of the insured and the employers. The contribution rate was reduced from (2013) 18.9% to 18.7% since 1.1.2015. Since the organizational reform of the statutory pension insurance institutions in 2005, the statutory pension insurance institutions have been the Deutsche Rentenversicherung Bund and the Deutsche Rentenversicherung Knappschaft-Bahn-See.
The service profile of the German pension insurance
One of the most important services provided by the German statutory pension insurance is the payment of pensions to insured persons and surviving dependents in Germany and abroad. The other service profile covers the financing of preventive and rehabilitation measures as well as participation in the insurance coverage of pensioners. German statutory pension insurance employees also provide advice, as they provide information on pension provision and explain to applicants how to claim their entitlements.
Employers can likewise turn to this insurance provider for advice on all matters relating to pensions. Regular public relations work is intended to help ensure that employees and pensioners are well informed about the subject of pensions. Every year, the German statutory pension insurance sends out the pension information, which provides information about the pension entitlements acquired and the pension payments to be expected in the future.
Upon reaching the standard retirement age, employees are entitled to payment of a pension without deductions. Pensions due to death are paid to surviving spouses of policyholders if the marriage had existed for at least one year at the time of death. Pensions due to reduced earning capacity are paid in the event of early transition from working life to unemployment. This category also includes early retirement pensions after receipt of unemployment benefits.
Statutory pension types
Old-age pension
Almost everyone who has worked or has raised children can receive the regular old-age pension. This is because five years of minimum insurance time (called the waiting period) is sufficient as a prerequisite. In addition, you must have reached a certain age. This age limit has been rising gradually since 2012, from 65 to 67. A decisive reason for this is longer life expectancy.
Because we are all getting older, we are receiving pension payments for longer. With a higher retirement age, the legislator ensures that contributions remain affordable for the younger generation, and therefore the age limit is going to increase in the future.
Pension for reduced earning capacity
Pensions for reduced earning capacity replace income if earning capacity is reduced to a certain extent or has ceased completely. These pensions are generally paid for a limited period (temporary pensions); after a total period of nine years, a permanent reduction in earning capacity is assumed and the pension is paid for an unlimited period until the beneficiary reaches the limit age – which will be 67 for me.
This is followed by the standard old-age pension of at least the same amount. The prerequisites for the reduced earning capacity pension are the fulfillment of the general waiting period of five years and the payment of compulsory contributions for three years in the last five years before the reduction in earning capacity occurred.
The previous occupational and disability pension was replaced by the two-tier reduced earning capacity pension as of January 1st, 2001. A full reduction in earning capacity pension equivalent to an old-age pension is paid if the remaining capacity to work on the general labor market is less than three hours per day due to illness or disability for an unforeseeable period of time. The insured person is entitled to a half disability pension if his or her remaining capacity to work on the general labor market is between three and six hours.
Pensions due to death for survivors as widow’s pension
The widow or widower is entitled to a widow’s pension from the statutory pension insurance if the deceased insured person fulfilled the general waiting period and they did not remarry after the death of the deceased.
There are small and large widow’s pensions. The small widow’s pension is limited to 24 months and is 25% of the deceased’s disability pension. The large widow’s pension, amounting to 55%, is granted if either the deceased has reached the age of 45 (with annual increases in the age limit from 2012) or is raising her own child or a child of the deceased, or is caring for such a child who is disabled.
A modified survivor’s pension applies to marriages contracted after 2001 and to marriages in which both partners are younger than 40. In the case of the large widow’s pension, children will be honored with a supplement in the future.
Since the pension reform places a higher value on bringing up children and child allowances are granted for personal provision, mothers will be able to secure their old-age pensions more independently in the future; the widow’s pension, which is purely dependent on the husband’s earnings, is increasingly taking a back seat.
In the case of orphans’ pensions, the statutory pension insurance system recognizes half-orphans’ and full-orphans’ pensions. An orphan is entitled to a half-orphan’s pension if he or she still has a dependent parent. It amounts to 10% of the disability pension. Entitlement to a full orphan’s pension exists if the orphan no longer has a dependent parent.
The pension is calculated on the basis of the pension entitlements of the two deceased parents. It amounts to 20% of the sum of the disability pensions of the two deceased plus a supplement. Orphans’ pensions are paid without restriction until the child reaches the age of 18, but not later than the child’s 27th birthday, if the child is in school or vocational training or is severely disabled.
Similar survivors’ pensions are also available from statutory accident insurance.
Orphan’s pension
An orphan’s pension is a permanent payment under statutory social insurance or under pension law, which is paid to the pensioner’s children – and possibly also to other relatives – in the event of the death of the pensioner.
It serves as compensation for the deceased’s lost maintenance contributions. If one parent dies, the pension is referred to as a half-orphan’s pension; if both parents die, it is referred to as a full-orphan’s pension.
During studies, school or vocational training or voluntary service, orphans can also receive an orphan’s pension from the German statutory pension insurance beyond the age of 18. Otherwise, pension payments regularly end on the orphan’s 18th birthday. Orphans’ pensions can be drawn until the age of 27 at the longest.
Child-raising pension
The child-raising pension belongs to the pensions due to death of the German statutory pension Insurance. It is intended to replace the maintenance of the deceased partner and thus enable the upbringing of the child. Unlike the widow’s pension, for example, the child-raising pension is paid from the survivor’s insurance. The prerequisite is that the person has paid contributions to the statutory pension insurance for five years, has not remarried and the marriage was divorced after June 30, 1977.
Insured persons are entitled to a child-raising pension as long as they are raising one of their own children of the divorced spouse, if they have not remarried and if they have fulfilled the general waiting period until the death of the divorced spouse. It corresponds to a full pension. 40% of their own earned income (wages, salary) is offset against the child-raising pension.
Pension formula
The individual pension is calculated according to an pension formula:
Monthly pension amount = earning points x access factor x current pension value x pension type factor
Earning points
This is the most important value. Year by year, your earnings are compared with the average earnings of all insured persons. If it corresponds exactly to the average earnings in that year, it is worth 1 earning point. Periods during which you raised your children or cared for dependents are taken into account as if you had had “hypothetical” earnings during this period, based fully or proportionately on the average earnings in question.
Access factor
This takes into account additions and deductions (called additions and deductions) in your pension calculation. Deductions are made if you retire early. Additions if, for example, you initially waive your pension after reaching retirement age. If you have no additions or deductions, this value is 1.0.
Current pension value
This is the equivalent value that corresponds to one earning point. This is always adjusted to the economic situation. Currently, it is 36.02 euros for West Germany and 35.52 euros for East Germany.
Pension type factor
This depends on the type of pension you receive:
| Pension type | Factor |
| Old-age, full reduction in earning capacity and child-raising pensions | 1 |
| Partial reduction in earning capacity | 0,5 |
| Orphans’ pensions | 0,2 |
| Half-orphans’ pensions | 0,1 |
| Widows’ pensions | 0,55 |
Here you can calculate your statutory pension start date and the monthly pension amount:
Private pension insurance
Pension insurance is supposed to be a hedge against “long life,” as the insurance industry puts it. With lifelong pension payments, it aims to ensure that money does not run short in old age – regardless of how long someone lives.
Annuity insurance is actually a variant of life insurance. But while there is a health check for every form of life insurance, there is no need for one when taking out private pension insurance. This is because the business models differ. With life insurance, the insurance company must pay as soon as the insured dies. The insurance company therefore wants to protect itself against early death and thus against early payments by means of a health check.
With annuity insurance, on the other hand, insurers have an advantage if the insured dies early. After all, they then have to pay out the agreed pension for a much shorter period of time. What money is left over as a result, they can use instead to finance the long life of the other insured. That is the insurance aspect of private pension insurance.
Different forms of private pension insurance
In the case of “deferred annuity insurance,” the insured person pays in regular contributions over a period of years. The insurance company pays out the saved capital as a monthly pension from the agreed start of the pension. The form in which the saved capital is to generate a return varies depending on whether the contract is a classic annuity insurance, a unit-linked annuity insurance or one of the many variants of the new classic.
The second basic form is the “immediate annuity”. Instead of saving capital over a period of years, the insured person pays in a large amount once – the single premium. The insurance company annuitizes this money immediately, so it usually starts paying it out again as a monthly amount. However, it is also possible to postpone the annuity for a while and only start paying it out after a few years.
Payment of the private pension insurance
With a deferred pension, the insured person can choose whether to have the accumulated capital paid out as a lifelong pension or to use his or her lump-sum option. The latter means that he receives the money in one lump sum. But beware: An annuity payment is generally more tax-efficient than a lump-sum payment.
Those who opt for annuity payments, known as life annuities, can often choose between a dynamic and a constant annuity. In the case of a constant annuity, the payment is to remain the same throughout the entire annuity phase. A projected surplus participation for the entire pension period is already included in the pension amount. If the expectations do not materialize, it is possible that the annuity will be reduced. The constant annuity loses value over time due to inflation.
The dynamic annuity is somewhat lower than the constant annuity at the start of the pension. However, it increases over time, provided that the surpluses generated by the insurance company allow it. The pension can no longer be reduced. Because of the adjustment, the pension loses less value due to inflation. It is particularly worthwhile if someone lives to a very old age.
A hybrid of the two payout variants is the partially dynamic annuity. Part of the surplus is dynamic and cannot be reduced. Another part is projected before the pension starts and can be reduced again if the surpluses are not sufficient to finance it.
For more information about the statutory pension insurance:
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