Decrease in insurance contributions results in reduced pensions starting July
Freshening Up the Pension Insurance Scene
Four-scoop summer treat is on the horizon, as the German Pension Insurance assures, with pensioners set to experience a full pension hike come August. However, keep in mind the unusual July payout event, often referred to as the "Spring procession" by the pension insurance, is a one-time occurrence due to various special regulations. Nevertheless, the pension insurance guarantees open and transparent communication.
Here's a heads up: The pension boost of 3.74% in August follows the 4.6% increase from 2024 and stays consistent in both the east and west. This equates to an increase from a monthly gross pension of 1500 euros to 1556 euros. Yet, this exact figure won't hit bank accounts in July, since health and long-term care insurance contributions have increased since the beginning of the year.
Heath and Long-Term Care Insurance BreakdownThe long-term care insurance bumped up by 0.2 percentage points to 3.6% per month as of January 1, 2025. Pensioners won't feel this switch until July, thanks to a special rule. Applying this increase to our example pension of 1556 euros boosted by the pension increase, it means a loss of 3.11 euros a month. However, the retroactive payment from January to June, due in July, totals 1.2%, causing a deduction of 18 euros in total during these months. So, the actual July pension increase in this example reduces by 21.11 euros. Rest assured, the new 3.6% contribution rate from August will apply, according to paragraph 1, paragraph 2 of the long-term care contribution rate adjustment regulation 2025.
Health Insurance AdjustmentsAn increased health insurance landscape is on the horizon, with some health insurance companies requesting a higher additional contribution since the beginning of the year. Initially, pensioners remain unaffected, thanks to a special stipulation in the Social Security Code (SGB) that changes to the additional contribution for pensioners only apply "from the first day of the second month following the change."
Dive Deeper:- Should you work more or invest instead as you age in Germany? (Find out more here)- The new Minister of Labour ponders unifying the pension insurance for the self-employed and civil servants in Germany, Austria being a precedent in this matter.(Get the details here)- Discover the different paths the future of pension systems in Germany could head as discussions unfold.(Gain insights here)
Germany's Mother's Pension Shift: Yes, a Small Step but a Meaningful OneA positive update worth noting is the adjustment to the mother's pension set for July 2025 in Germany. This change is part of an extensive pension reform package aiming to strengthen pensions overall. As part of this plan, the Mothers' Pension will receive additional pension credits, or credit value for time spent raising children, bringing larger pension payments for eligible mothers who contributed to the pension system through child-rearing.
It's crucial to know that the pension increase due to July 2025 doesn't automatically guarantee an increase in the mother's pension; instead, eligible mothers must apply for it. However, the pension insurance stated that applications may not be necessary in cases where the child-rearing periods were accurately recorded in the pension application. Unfortunately, the timeframe for this change remains unclear, with the source unspecifying if it will come into effect retroactively for July 2025 or only in 2026.
Pension Refinement DetailsThe mother's pension expansion is anticipated to lift the monthly pension amounts for eligible mothers by providing more pension credits or increasing credit values for time spent raising children. Concretely, mothers who contributed to the pension system through child-rearing are set to profit from larger pension payments. The exact boost to the monthly pension depends on the bill details, as part of the comprehensive pension package, which is yet to be legislated. The goal is to improve pension payments for mothers by enhancing their pension entitlement periods or credit multipliers in the pension insurance system.
The bolstered mother's pension won't directly improve pensioners' financial standing during retirement. Instead, it aims to close the gender pension gap, making women's pension payments more robust. Current data from the Federal Statistical Office of Germany shows that women are more likely to work part-time, leading to lower pension payments, compared to men. This reform represents a step towards increasing financial security for women during their retirement years.
Furthermore, the German mother's pension reform is collaborative between the CDU, CSU, and SPD coalition, having passed in their joint committee at the end of May. The reform counts on an equal treatment for mothers and fathers, ending the current discrepancy of mothers receiving 2.5 child-rearing years credited to their pension account for each child born before 1992, while fathers receive 3.0 pension points. Future mothers born before 1992 will receive 0.5 pension points more per child per month. Until now, 1.2 million children were born to men, highlighting that fathers can also benefit from this much-needed pension adjustment.
*For Further Insights:- [1] "Germany to Raise Minimum Retirement Age" - The Washington Post, 2nd June 2023- [2] "German Pension Reform: What You Need to Know" - The Local DE, 20th May 2023- [3] "Comprehensive Pension Reform Package for Germany Unveiled" - Pensions Age, 1st June 2023*
The upcoming pension boost for August, as guaranteed by the Pension Insurance, is likely to positively impact businesses, as increased pensions can lead to higher consumer spending. However, the Health and Long-Term Care Insurance adjustments might affect the net income of pensioners, as changes to contributions can alter their monthly pension payments.
