2014 Pension Package

On 23 May 2014, the German parliament passed the Law Improving Benefits under the Statutory Old-Age Pension Insurance Scheme; it came into effect on 1 July 2014.

The Pension Package includes three core rulings:

1. Long-term insured persons

In future, long-term insured persons - these are employees with 45 years of contributions to the old-age pension insurance scheme - can retire at the age of 63 without deductions if they were born before 1 January 1953. The age limit for younger long-term insured persons will increase in stages up to 65.

In terms of contributions, this represents a financial gift for longterm insured persons. Normally, early retirement should result in the calculation of actuarial deductions. These will be waived. In addition to periods of employment, other periods of insignificant employment, military/alternative civilian service, caring for relatives, child raising, periods of receipt of unemployment benefit or temporary allowances, periods of further vocational training, incapacity for work, receipt of short-time working benefits etc., will also apply as contribution years. Periods of unemployment will be counted towards the contribution years - without limitation. Nevertheless - in order to avoid early-retirement models with the help of unemployment benefit - periods of unemployment during the final two years before retirement can only be taken into consideration if they are the result of insolvency or complete discontinuation of the business by the employer.

Persons insured voluntarily will only benefit from this early retirement if they have paid compulsory insurance for at least 18 years.

2. Maternity pension

The second aspect of the Pension Package is the „Maternity pension“. Parents whose children were born before 1992 should receive an additional remuneration point for raising each child. The cut-off year 1992 is explained by the 1992 pension reform. This reform introduced this allowance for children born in or after 1992.

3. Pension for reduced earning capacity

Finally, the third aspect of the Pension Package is improved protection against reduced earning capacity, accompanied by improved rehabilitation measures. The budget for this form of rehabilitation measure has been increased, persons retiring early with reduced earning capacity are treated as if they had worked for two more years.

Summary

The Pension Package represents a further shift in the pension factors to the detriment of the younger generations, which are already burdened by demographic developments. These generations now face the possibility of paying more money into the pension system during their working life than they will receive in benefits. This gives cause for concern. The opportunities for early retirement, now available through the pension for the long-term insured despite some statutory bars, are cause for concern from the perspective of society as a whole, but are nevertheless worth considering for employers. It is not without reason that the pension gifts are being called into question – for example by the BDA (Confederation of German Employers’ Associations) and the BDI (Federation of German Industries) - with many good arguments.