Pension increase rolls out in July

style="float: right; margin-bottom: 10px; font-weight: 600;"Wed 30th Jun, 2021

Just in time before the grand coalition government ends for this legislative period, one of its prestige projects is reaching citizens, or more precisely pensioners. According to estimates by the Federal Ministry of Labor, around 1.3 million retirees will receive a supplement to their pensions at taxpayer expense. In the face of opposition from the CDU/CSU, the SPD pushed through the basic pension last year, which is intended to recognize the lifetime achievements of people who have worked all their lives but still only receive a comparatively small pension.Although the corresponding law has been in force since the beginning of the year, it is only now, in July, that the pension insurance company is sending out the first notices. This is due to the complicated data transfer between the German pension insurance, the financial and social authorities, which first had to be set up in order to be able to calculate the supplements.However, the delay should not be at the expense of those affected: All basic pension supplements will be paid retroactively to January 1, 2021, which also applies to retirees who will have to wait until the end of next year for their decision. However, no interest will be paid on the additional payment.

What is the basic pension?

Contrary to what the name suggests, the basic pension is neither a new pension nor does everyone receive it. Rather, it is paid as a supplement to old-age, reduced earning capacity or survivors' pensions. The aim is to improve the situation of long-standing low-income earners in old age by automatically increasing their pension entitlements.According to the Federal Ministry of Labor, about 70 percent of the beneficiaries of the basic pension will be women who have worked in lower-paying jobs or part-time because of their families. People from eastern Germany are also likely to be among the winners of the basic pension.

Who receives the basic pension?

To receive the full basic pension, you must have accumulated 35 years of basic pension periods. If you have "only" 33 years, you will receive a lower supplement. For the basic pension, years are taken into account in which you paid pension contributions as a compulsorily insured person (dependent employees and compulsorily insured self-employed persons), cared for relatives or raised children. Mini-jobs, periods of unemployment, phases of school and university education and voluntary payments into the pension fund, on the other hand, are not taken into account.

How is the surcharge calculated?

The system is very complicated. In simple terms, only years in which one had at least 30 percent but no more than 80 percent of average earnings (2021: 41,541 euros gross per year) are taken into account when calculating the basic pension periods and the amount of the basic pension. The lower limit is intended to prevent windfall profits.The pension contributions of low-income earners are revalued as if they had earned 80 percent of the German average and paid contributions for it. However, the system is further complicated by the fact that the value calculated in this way is then reduced by 12.5 percent. This is to ensure that people who have paid higher pension contributions also receive a higher overall pension.

How high will the supplement be?

The supplement will be calculated individually. However, the Federal Ministry of Labor assumes that it will average 75 euros per month. However, a maximum of 420 euros per month would be possible.

Are there limits?

Yes, single people only receive the full basic pension if their monthly income does not exceed 1250 euros; for married couples and registered civil partnerships, it is 1950 euros. If the income exceeds this limit, 60 percent of the income above this limit is taken into account; income above 1600 euros (singles) or 2300 euros (couples) is taken into account in full.

How does the pension insurance company find out about my income?

The pension insurance company gets its data from the tax offices. The taxable income is decisive for the calculation of the basic pension. Secondary jobs, rental income or capital gains can result in a lower basic pension. The data transfer is fully automatic, but the tax authorities transmit the data with a two-year delay.In the income calculation, assets and possible real estate ownership are not taken into account. The CDU/CSU did not want to support this, but could not prevail with its concerns. A spokeswoman for the Ministry of Labor told the Daily Mirror that the basic pension - unlike the basic pension in old age - is not about a means test, but about "recognition and appreciation for many years of compulsory contributions and the achievements of a long working life".

Do I have to submit an application?

No. The German pension insurance fund checks all 26 million pensions on its own initiative. The Ministry of Labor reckons that five percent are entitled to receive basic pensions.

How long does that take?

The pension insurance starts with the people who are newly retired in July. After that, the 1.7 million pensioners who are also recipients of welfare benefits such as basic security or housing allowance will be taken care of. These are to receive more money as quickly as possible. To ensure that the higher pensions do not lead to a reduction in social benefits, there have been allowances since the beginning of the year.The third group consists of elderly pensioners who received their pensions before 1992. This year, seven to eight million cases are to be audited, according to the pension insurance. By the end of 2022, all audits should be completed.

What about pensioners abroad?

Around 1.7 million of Germany's senior citizens live abroad. The automatic data transfer does not work here. Although retirees are contacted by the pension insurance, they have to provide the necessary documents for the basic pension; if they don't, they don't receive a supplement.

Does the pension insurance company need more staff for this new task?

Yes. In order to be able to implement the basic pension, the pension insurance has made massive hires. Around 1,000 additional employees are now taking care of the basic pension. This year, this will lead to additional expenditures of 400 million euros, and in the following years of 200 million euros, according to pension insurance estimates.

What does the basic pension cost?

The basic pension is paid by the state, i.e. by taxpayers, and not by the insured. The Federal Ministry of Labor expects the pension supplement to cost 1.3 billion euros a year, and 1.6 billion euros from 2025.

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