Understanding the German pension system: Key points for expatriates

As an expatriate in Germany, it is crucial to understand the pension system to optimize your rights and plan your financial future effectively. Here is an overview of the main aspects of the German pension system.

The German Pension System

Public Pay-As-You-Go System: Germany's pension system operates on a pay-as-you-go basis. Current workers' contributions fund the pensions of current retirees. Pension coverage is mandatory for all employees, including self-employed individuals, freelancers, and those with mini-jobs, although contribution terms may vary based on professional status.

Contributions: Contribution rate for pension insurance (Deutsche Rentenversicherung) is 18.6% of gross salary, split equally between the employer and the employee, each paying 9.3%. Contribution ceiling for 2023 is capped at a gross annual salary of €87,600 (in the old Länder) and €85,200 (in the new Länder). Income above this ceiling is not subject to contributions.

Pension Points: Value of a point is €37.60 per month in West Germany and slightly less in East Germany. A point is earned for an annual income equal to the average income of insured persons (€43,142 in 2023). With contributions capped at €87,600, a maximum of 2.03 points can be accumulated per year.

Pension Amount: The gross pension amount is determined by multiplying the total number of accumulated points by the current value of the point. For example, with 45 years of contributions and a salary at the ceiling, a retiree could accumulate 2.03 points per year, totaling 91.35 points. This would result in a gross monthly pension of €3,435 (91.35 x €37.60).

Retirement Age: The legal retirement age is 67. Early retirement is possible at 63 with a reduction of 0.3% per month, up to a maximum of 14.4%. Deferred retirement allows for an increase in the pension of 0.5% per additional month of work.

Exceptions and Options: Individuals who have contributed for 45 years can retire without reduction starting at age 63. There are options for partial retirement, where you can work part-time while receiving a portion of the pension.

Conclusion

For personalized advice on your pension in Germany, contact us today. Our experts are here to guide you in managing your retirement plan and optimizing your benefits.