Family - MW Expat

Germany’s pension system is widely recognized for its robustness and reliability, providing financial stability to retirees. However, planning for retirement in a new country can be overwhelming, especially when it comes to understanding the local pension system and what your German pension payout might be.

If you’re an expat in Germany, figuring out how much you’ll receive from the German pension payout can feel like a puzzle. In this article, we will delve into different aspects of the German pension system, helping you understand contributions and potential payouts so that you can confidently plan for your future.

1. Understanding the German pension Payout system

The German pension system, known as the Deutsche Rentenversicherung, is primarily funded through mandatory contributions from employees and employers. It operates on a pay-as-you-go basis, where current workers fund the pensions of current retirees. As you may already know, the main types of pensions within the pension system are the public or state pension (Gesetzliche Rentenversicherung, GRV), company pensions (Betriebliche Altersvorsorge, bAV), and private pensions (Private Altersvorsorge). Understanding these components is crucial to estimating your future German pension payout. You can read further information on pension plans in Germany on this link.

2. Factors influencing pension payouts

In Germany, pensions are commonly disbursed monthly to individuals who have reached the appropriate retirement age. The administration of these payments falls under the purview of the Deutsche Rentenversicherung, the country’s pension insurance agency. Pensions are typically transferred directly into the recipient’s bank account, forming the foundation of your German pension payout.

The following factors determine the amount of pension one receives within the German pension system:

1. Earnings. The higher your earnings, the higher your contributions, and consequently, the higher your pension payout.

2. Contribution years. The number of years you have contributed to the pension system significantly affects your final German pension payout.

3. Pension points. Throughout your career, you accumulate pension points based on your income relative to the national average income. These points are crucial in calculating your pension.

4. Retirement age. The standard retirement age in Germany is gradually increasing from 65 to 67. Luckily, the German pension system requires everyone to chip in with a mandatory pension contribution. This contribution, known as the Gesetzliche Rentenversicherung, amounts to 18.6% of your gross income every month (as of June 2024). Early retirement is possible but results in reduced benefits.

3. Calculating the German state pension

The calculation of the state pension in Germany is based on a formula that includes the number of pension points accumulated, the pension factor (which depends on the type of pension) and the current pension value. Here’s a simplified breakdown:

Pension points. Each year, you earn points based on your income compared to the average income, which directly impacts your German pension payout.
Pension factor. Generally, it is 1.0 for a standard old-age pension.
Current pension value. This is the monthly pension amount for one pension point. As of 2024, the value is approximately €36.02 in Western Germany and €35.52 in Eastern Germany.

Example calculation: If you have accumulated 45 pension points and retire with a standard pension:

45 points x €36.02 (West) = €1,620.90 per month.

Moreover, pensions in Germany are subject to income tax. The taxable portion depends on the year of retirement, with a gradual increase in the taxable percentage. For those retiring in 2024, approximately 84% of the pension is taxable.

We highly recommend you to check out the Bundesregierung website (official Federal Government website) to request or receive your annual pension information and stay informed about your personal situation.

4. The Impact of Demographic Changes on the Pension System

Germany, like many other countries, is facing significant demographic changes that will impact its pension system and by extension, your German pension payout. The population is aging, with a growing number of retirees and a shrinking workforce to support them. This shift raises concerns about the sustainability of the pay-as-you-go system in the long term.

Aging population. As the population ages, there will be more retirees relying on pensions, while the number of working-age individuals contributing to the system decreases. This demographic shift could lead to increased financial pressure on the pension system.
Longevity. People are living longer, which means they will be drawing pensions for a more extended period, potentially reducing the amount of future German pension payouts.

Policy responses. To address these challenges, Germany has implemented reforms such as gradually increasing the retirement age and encouraging private pension savings. These measures aim to ensure the long-term sustainability of the pension system despite demographic pressures.

5. Recent Pension Increase: July 2024

On July 1, 2024, German pensions increased by 4.57%, marking the third consecutive year of significant pension growth. This increase, driven by rising wages and strong labor market conditions, will be applied uniformly across all federal states, eliminating the historical disparity between Eastern and Western Germany. The adjustment, which exceeds the projected inflation rate of 2.8% for 2024, reflects the favorable wage agreements that have contributed to this positive development.

Federal Employment Minister Hubertus Heil highlighted the importance of this increase, noting that it symbolizes a key milestone in the equalization of pension rates across the country. Previously, pension rates in former East Germany were lower due to different calculation methods, but legislative changes initiated in 2017 have gradually leveled these rates. The 2024 adjustment brings the pension rates fully in line across all regions, a year earlier than originally planned.

This upcoming increase will benefit approximately 21 million pensioners in Germany, providing additional financial security by enhancing the German pension payout in a time of rising living costs.

6. Special Considerations For Expats

For expats, there are a few important things to remember when it comes to pensions:

Bilateral agreements. Germany has agreements with many countries to avoid double contributions and to ensure that periods of contribution in different countries can be added together within the pension system.
Residency. Generally, you must reside in Germany to claim the full pension. However, expats from EU/EEA countries and some other nations can receive their German pension payout abroad. For more detailed information on how these agreements apply specifically to Germany, you can visit the European Commission’s official website here.
Voluntary contributions. Expats who have not completed enough contribution years may opt to make voluntary contributions to enhance their pension entitlement.

With this information in mind, you can better understand how the German pension system works and what to expect in terms of your pension payout. By familiarizing yourself with the key factors that influence pension payouts, such as earnings, contribution years and pension points, you will be able to navigate the complexities of the system.

If you need personal guidance, feel free to reach out to us. Our pension experts will assist you in helping you make informed decisions and secure a bright future, ensuring your German pension payout meets your retirement needs. Arrange a free consultation now! We also have a live chat feature available on every page. If you have any questions, just click to start a conversation, and our team will be happy to assist you shortly.”

What our clients say about our services

I have had an incredible experience with Dabar Reimer. She is very well experienced and was able to provide solutions for multiple scenarios. I am very thank full to her and highly recommend having a discussion with Dabar before choosing your next insurance policy.

They have been so patient and thorough with helping during every step. I couldn’t imagine doing this on my own!

My agent, Anja Lampert is super friendly and helpful throughout the entire process. Excellent service provided.

The support I have received from Dabar was outstanding. She was always available to answer all my questions, and helped me out through the whole process. Thank you so much!

I have appointed with Alex as the to-go person for all matters. Honestly he is providing the best service someone can get in Germany, solving problems literally in minutes! Highly recommend MW Expat Solution!

It was a brilliant experience with MW expat. Right from filling up my details online, receiving a prompt call to book an appointment for detailed discussions of my needs to finally having a zoom call to talk to an advisor face to face was quick efficient, and re-assuring. I had the privilege to talk to Adriana Gonzalez, who was nothing short of brilliant. She was extremely composed, utterly professional, and very helpful.

As an expat coming to Germany, you should know that registering for health insurance is one of the most important things you need to take care of before moving to the country. Health insurance is compulsory for everyone living in Germany. Therefore, if you’re planning to bring your relatives with you, we would like to offer you all the information on how to insure your family in Germany.

How does family insurance work in Germany?

First of all, you should know that there are two main types of health insurance in Germany: public health insurance (or statutory health insurance) and private health insurance (usually known as PKV in German). No matter what kind of insurance you’re registered at, all family members must also be insured.

The German health care system includes certain regulations for family insurance in order to make sure that everyone is equally covered. There is a so-called family co-insurance, in which dependent family members, such as spouses and children, are eligible to enrol for free with the health insurance provider in which the main family member is already insured. This is due to the fact that it is common for family members to remain unemployed for a while after they move to Germany.

Who can benefit from free family co-insurance?

Expats’ partners who receive no income or an income that does not exceed 470 euros per month (as of 2022) are eligible for this aid. In addition, partners who earn 450 euros with a part-time job or find themselves under marginal employment can also be covered at no cost.

Children are normally insured free of charge until they reach the age of 18. However, this age limit might be raised under certain conditions:

If they are unemployed, they can be insured up to 23 years old.
If they are still enrolled in school, vocational training or are doing voluntary programs, they can be insured up to 25 years old.
If their education was interrupted by military or civilian service, they can be insured over 25 years old.
Permanently disabled children do not have an age limit to be covered free of charge.

What are the steps to insure your family in Germany?

Regardless of your relatives’ situation, you will have to fill in and send a form to your health insurance provider to include them in your insurance coverage. In this form, you have to specify the members you want to include, their previous economic situation and their current incomes.

If the family members you are planning to bring to Germany will work in the country, you will have to pay additional costs to insure them. In order to calculate the premium you will pay as a family, your health insurance will evaluate your partner’s gross salary as an employee, including regular annual bonuses; their income as freelancers (if applicable) and their income from investments, rentals or similar, as well as those coming from retirement insurance.

However, this is something your health insurance provider will take care of. You don’t need to worry about anything!

What kinds of insurance should families have?

As a rule of thumb, you should insure everything that could put you in an existential risk as a family. There is a list of different insurances that are not compulsory in Germany, but highly recommended for families.

Liability insurance. If you cause damage to someone else, you will be liable for it. In the worst case, this could lead to financial problems. The price you pay for this insurance is usually around 40-60 euros a year, which is why most families opt for it.
Disability insurance. Occupational disability insurance covers you if you lose your income due to occupational disability.
Term life insurance. Term life insurance secures the family income if one parent dies.
Homeowners insurance. Homeowners insurance offers homeowners protection in the event of damage that could threaten their property or assets (e.g. storm, lightning, explosion, etc.). We only recommend this type of insurance if you own a house.
Objects insurance. Household objects insurance covers damage to the contents of your flat or house.

We hope that this article helped you understand how to insure your family in Germany. If you want to find out more information, do not hesitate to schedule a call with our insurance experts at MW Expat.

Category: Family

German Pension Payout: What You Can Expect to Receive

Table of Contents