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Category: Guides

Latest German Pension Changes: The New Reform

Posted on by Clara

Germany’s pension system is undergoing significant reforms in response to the challenges posed by an aging population and increasing economic pressures. As the number of retirees grows and the ratio of workers to pensioners decreases, the government has introduced new measures to ensure the sustainability of pension benefits. In this article, we’re going to explore the latest German pension changes, analyzing their implications for both current and future participants.

1. Recent German Pension Changes in Pension Laws

The New Sovereign Wealth Fund

One of the most notable developments in the recent German pension changes is the creation of a New Sovereign Wealth Fund. This initiative aims to relieve the long-term burden on contributors by building a permanent capital stock through the purchase of global capital assets. The fund will be financed by loans from the federal budget and transfers of government funds. As an initial step, the government plans to take on €12.5 billion in debt this year to establish the so-called Generational Capital, which will be invested in capital markets.

Over time, the fund’s value is expected to grow by 3% annually, aligned with projected wage growth, with €15 billion planned by 2028. By 2036, the goal is to accumulate a capital stock of €200 billion. The returns from these investments will enable annual distributions of €10 billion to the pension insurance scheme, thereby supporting the sustainability of pension payments under the new German pension system. To safeguard these distributions, a security buffer will be set up to protect the assets, particularly the loan amounts.

“It is long overdue that we use the opportunities of the capital markets for statutory pension insurance,” said Finance Minister Christian Lindner, emphasizing that this approach should have been adopted two decades ago.

Woman with a computer

Pension Contributions and Adjustments

The recent German pension changes also affect contribution rates, which have been stable at 18.6% since 2018. To address the growing financial strain on the pension system, the government has planned gradual increases in contributions. Starting in 2028, the rate will rise to 20%, with a further increase to 22.3% by 2035. These German pension reform is aimed at balancing the pension system’s finances while keeping the burden on current workers manageable. Despite these increases, the government assures that these contributions will remain stable until 2045.

Couple checking document

 

Pension Level Guarantee

In order to protect retirees from the potential erosion of their pension benefits, the government has introduced a “level protection clause” under the new German pension changes, which guarantees the pension level will not fall below 48% of the average wage until 2040. This provision is a critical component of the reform, as it aims to maintain the purchasing power of pensions in the face of economic fluctuations and demographic changes. By anchoring the pension level to wage trends, the government seeks to provide a reliable income for retirees, ensuring their financial security under the new German pension reform.

2. Implications for Current and Future Participants

Impact on Current Retirees

The recent German pension changes are designed to provide stability and security for current retirees. With the introduction of the New Sovereign Wealth Fund, the government plans to ensure that pensions remain closely tied to wage growth. This means that retirees can expect their pension payments to maintain purchasing power, even as economic conditions fluctuate. The establishment of a capital stock and the implementation of the level protection clause further safeguard the financial well-being of current retirees. These measures are designed to prevent any significant reduction in pension benefits, providing a sense of security for those who are already retired.

Implications for Future Retirees

For future retirees, the German pension reform carries both opportunities and challenges. On one hand, the New Sovereign Wealth Fund promises to stabilize the pension system, potentially leading to more predictable and secure retirement benefits. On the other hand, the planned increase in contribution rates could place a heavier financial burden on younger workers. Starting in 2028, contributions are set to rise from 18.6% to 20%, with further increases to 22.3% by 2035. This could impact disposable income for working individuals, particularly those in the early stages of their careers. Additionally, there is ongoing debate about whether the retirement age should be further increased beyond the planned rise to 67 by 2029, as a way to alleviate pressure on the pension system under the new German pension changes.

Couple looking at pension plans

Private vs. Public Pension Options

As the public pension system undergoes pension changes, the role of private pensions is becoming increasingly important. While the statutory pension remains the backbone of retirement security for most Germans, private pension plans offer an additional layer of financial protection. The government has not made it mandatory for all workers to contribute to private pension schemes, but there is growing discussion around this topic. Some political voices suggest that mandatory inclusion of all workers, including self-employed individuals and civil servants, could further strengthen the overall pension system. However, this proposal is met with resistance, particularly from those who prefer to rely on personal savings or alternative investment strategies. You can find further information on pension plans on this link.

3. The Financial and Social Implications of the New Pension reform

Economic Impact

The introduction of the New Sovereign Wealth Fund marks a significant shift in how Germany’s pension system is financed. By investing in global capital markets, the government aims to generate returns that will help sustain pension payments without overly burdening the federal budget. However, this approach comes with inherent risks, as market fluctuations could impact the fund’s performance. The decision to fund the Sovereign Wealth Fund through federal debt also raises concerns about long-term economic sustainability, particularly in an environment of rising interest rates and global economic uncertainty under these German pension changes.

Person on the debate table

Social Considerations

Socially, the German pension changes have sparked considerable debate. On one hand, the promise of stable pensions and the creation of a financial buffer for future retirees are seen as positive developments. On the other hand, the increasing reliance on capital market investments has raised questions about the equity of the pension system. Critics argue that those with higher incomes, who are better able to invest in private pension plans, may benefit disproportionately from the new system, while lower-income workers could face greater financial strain due to higher contribution rates. Additionally, the impact on future generations, who will bear the brunt of the increased contributions, is a major point of contention under these pension changes.

Public Reception and Political Reactions

The German pension changes have also elicited mixed reactions from the public and political leaders. While some view the New Sovereign Wealth Fund as a necessary step to ensure the long-term viability of the pension system, others are skeptical of its effectiveness. The ruling coalition has faced criticism from opposition parties, particularly the Christian Democrats (CDU), who argue that the plan does not go far enough in securing pension stability. They also express concerns about the risks associated with investing in the capital markets. Meanwhile, left-leaning politicians and populist parties have voiced concerns that the reforms could exacerbate income inequality and place an undue burden on future generations. You can read further news on this link.

Potential Revisions to the Current Plan

Given the criticisms and ongoing debate, it is likely that the current pension reform plan will undergo revisions before it is fully implemented (you can find more information here). Some lawmakers have called for more rigorous safeguards to protect the Sovereign Wealth Fund from market volatility, while others advocate for a more comprehensive approach that includes both public and private sector reforms. The government has expressed a willingness to consider adjustments, particularly in response to concerns about the long-term financial burden on younger generations. The final form of the legislation will likely reflect a compromise between the various political and social interests involved in shaping the German pension changes.

All in all, Germany’s recent pension reforms represent a bold attempt to address the pressing challenges of an aging population and a shrinking workforce. The introduction of the New Sovereign Wealth Fund, along with adjustments to contribution rates and the pension level guarantee, are central to the government’s strategy to ensure the system’s sustainability. As the legislation moves forward, it will be important to monitor how these German pension changes are implemented and whether they succeed in securing a stable and fair pension system for all Germans.

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Student Health Insurance: A Guide for Studying in Germany

Posted on by MW Expat

International students hoping to complete their education in Germany need to have Germany’s healthcare insurance before enrolling in school and obtaining a residence permit. German student health insurance is designed to be reasonable. The country requires students to pay the standard discounted sum for their insurance unless they have a job.

How to Get Health Insurance as a Student in Germany

Before arriving in the country, you will apply for a German student visa from a German embassy in your city. You will need a short-term travel health insurance plan to cover you for your initial stay while you procure your long-term international healthcare insurance. Then, before enrolling at your chosen university, you will need to contact a Krankenkasse, i.e., a health insurance company. Your chosen company will give you their plan and relevant details. You can study the plan and coverage and choose the student health insurance that works best. 

What Should Your Student Health Insurance Cover?

Your student healthcare insurance in Germany should cover the following:

  • In-patient and out-patient care
  • Regular medical check-ups
  • Medicine costs
  • Emergency services
  • Basic dental care
  • Pregnancy treatment
  • Funeral costs and repatriation of remains costs in case of death

Choices for Student International Healthcare Insurance in Germany

Germany offers two types of health insurance – public and private. Your eligibility for them depends on your age and education status. Let’s explore these two options:

Public Health Insurance for Students

Students under 30 enrolled in degree courses in Germany must have public health insurance. You cannot register at your university without a statutory/public health insurance certificate. Students in Germany only have to pay around 110 per month as their premium until they turn 30. 

However, you cannot register for Germany’s statutory health insurance if:

  • You already have an EU health insurance in your home country 
  • You are over 30
  • You are self-employed or working as a freelancer
  • You are not enrolled in a degree course in the country

Important Note: If you reside and work in Germany while studying and earning more than €450 each month, you will need to avail health insurance as a foreign worker. 

Suppose you wish to benefit from private health insurance as a student under 30. In that case, you will have to request an exemption certificate from the statutory health insurance within the first three months of starting your studies. Once you forfeit your public insurance, you cannot revert to it for the duration of your education unless you start earning and register yourself as an employee. 

On the flip side, you can get public health insurance without technical eligibility if you are:

  • Enrolled in compulsory training after getting your degree
  • Have to care for sick or disabled relatives
  • Have a disability or illness
  • Participate in a board conducted by your university
  • A recent parent

Private Health Insurance for Students 

You must purchase private health insurance in Germany if you are:

  • Over 30
  • Enrolled in a language or preparatory course
  • A PhD student 

Moreover, if you were covered by statutory health insurance before your PhD program, you can keep it or get private insurance. Since public insurance only covers basic needs, many students opt for additional private health insurance. 

Getting Proof of Student Health Insurance in the Country

Germany’s healthcare system requires you to have proof of your student health insurance. You will need to contact your private health insurance company and request an insurance certificate as proof. It will contain your insurance plan, coverage, and other details. With a private insurance plan, you will need proof from the public health insurance provider in your area that you are exempt from statutory health insurance and that your current private plan meets your needs. 

Health Insurance for Language or Preparatory Course Students 

In Germany, international students pursuing a preparatory course cannot obtain public health insurance. Instead, they need to have private health insurance until they pass their course exam known as Feststellungsprüfung, enabling them to enrol in a degree program. That is when they will become eligible for statutory health insurance. 

Students pursuing a language course are not eligible for public health insurance. They will become eligible once they enrol in a degree programme or find employment. 

Health Insurance for Exchange Students 

Exchange students studying in Germany are enrolled in degree programs, enabling them to benefit from public health insurance. They can use the discounted amount like full-time international students despite studying in the country for a semester or two. 

Health Insurance for PhD Students 

PhD students studying in Germany are typically over 30 years of age, which means they are not eligible for statutory health insurance. However, the type of health insurance they are eligible for depends on their employment status.

PhD. Members Teaching at a University

When a PhD student is employed at a university as a research assistant or lecturer, they will need to pay 7.3% of their salary, and their employer will match the percentage. Moreover, PhD students teaching at a university are often insured as employees in public insurance plans by the university as their payroll is not above the threshold to register with private insurers.  

Non-Teaching PhD Students

PhD students who are not staff members and are less than 30 years old are eligible for the discounted statutory health insurance. However, students over 30 should seek private health insurance providers. But if they are working part-time in any institute, they can consider registering for public health insurance through their employer. 

MW Expat offers convenient public and private health insurance to students studying in Germany. Together with our student insurance partner BARMER we will help you to find the best solution for your personal situation. Get in touch with us today to learn more!  

The Expat Guide to Health Insurance in Germany

Posted on by MW Expat

Our Expat Guide to Health Insurance in Germany will provide you with everything you need to know in order to make an informed decision of what type of health insurance is best for you and you family.

Did you know that health insurance in Germany ranks number 12 worldwide, and the Euro Health Consumer Index puts it at the top of European countries due to its extensive range of recovery measures?

What makes German health insurance incredible is that you have full access to the healthcare system as an expat in the country, like every other German citizen. Moreover, Germany also requires you to show proof of health insurance while applying for a German visa.

So, let’s explore the German healthcare system and all you need to know to secure a health insurance plan as a new expat in the country:

What to Expect from Health Insurance in Germany

In Germany, health insurance is an obligation, i.e., all residents and expats are required to have some form of medical insurance in Germany. You can register with public health insurance (GVK) or private health insurance. Alternatively, you can choose GVK with supplemental private medical insurance.

Private vs. Statutory Health Insurance in Germany

So, what is the best health insurance in Germany? The answer is entirely dependent on you. That said, most German residents choose public health insurance as the private one requires you to be self-employed, non-eligible for public healthcare, earn more than the required salary threshold, and more. 

The significant difference between these two insurance types is that the bills in public insurance go directly to the insurance company. Still, the privately-insured individuals have to pay the medical bill and then receive reimbursement from the insurance provider. 

What Does Public Health Insurance Cover?

Statutory or public health insurance covers you for the following events:

  • Regular check-ups
  • Medical examination by a registered doctor
  • In- and out-patient care at a hospital
  • Certified sick notes
  • Prescription drugs
  • Pregnancy care
  • Health insurance for non-working dependents, such as children up to a certain age, spouse, and civil partner
  • Statutory sick pay (the employer will pay your wages of up to 6 weeks, and then you can continue to receive 70% of your net salary for a maximum of 78 weeks.

In Germany, public health insurance doesn’t cover prescription glasses or lenses, private hospital room treatment, alternative treatments, dental implants, and consultation hours with private doctors.

As a German citizen or expat living in the country, you need to join an insurance plan. Public/statutory health insurance is the standard plan for anyone earning less than 64,350€ every year. The cost of statutory health insurance will depend entirely on your salary. You will only have to contribute if you earn more than 850 euros a month. 

The health insurance contribution is 14.6% of your gross monthly income. You will have to pay this rate to any public health insurance provider.

However, the great news is that your employer will share half the contribution, i.e., they will have to pay 7.3% of your gross monthly salary with a cap of 4,687.5 euros each month. Your part of the contribution will get deducted from your salary every month. 

All You Need to Know About Private Health Insurance in Germany?

When it comes to private health insurance, you have great packages to choose from, determined by your budget and needs. You can go for the most expensive or the cheapest private health insurance in Germany. Whether you can switch from state to private insurance will depend on your employment status. If you earn more than €64,350 each year, you can apply for a private health insurance plan. 

But if you’re self-employed and earn more than the threshold, you can switch to private insurance. It works best for younger individuals with fewer health issues and significant salaries.

It’s because private insurance premiums are determined by personal factors, such as age, health risks, and family members on the plan. 

With that said, private health insurance does offer more extensive services and lower waiting times. You will also have access to doctors who are not available under a public insurance policy. Since these doctors only see private patients, it results in shorter waiting times. You can also look for a doctor who speaks your language. 

But private insurance in Germany doesn’t cover partners or children for free. Moreover, it requires you to pay the doctor’s fee upfront and then seek reimbursement later, which means you might have to remain on a tight budget after paying a hefty medical bill and waiting for the reimbursement. That said, you will likely get the total amount.

If you want to reduce your monthly premiums, you can choose a deduction fee, i.e., opt for a certain amount that you can pay for your treatments each year. Moreover, you are not obliged to stay with a company for 18 months in private insurance, but each insurance company might have different terms.

Now that you know about both types of insurance, you need to decide which insurance plan works best for you, depending on your salary, needs, and specific budget.