After long back and forth in the grand coalition, the Bundestag decided on the basic pension. But what does it mean for pensioners? The most important points of the law at a glance.
The Bundestag has decided on the basic pension. It is intended to “strengthen trust in the basic promise of the welfare state and in the performance of statutory pension insurance”. Now the project only has to pass the Federal Council on Friday. It is to be introduced on January 1, 2021 for existing and new pensioners.
The grand coalition has argued about hardly any project as long as about the basic pension. Everyone wanted this surcharge on basic security for mini-pensions for long-term insured persons, but the ideas differed. t-online.de clarifies the most important questions about the new pension.
Where is the problem?
The problem is old-age poverty: According to the Federal Statistical Office, around 559,000 people were dependent on basic security in old age at the end of 2018. That is a good three percent of all retirees.
Studies assume that around three times as many older people are entitled to social benefits due to their low income, but do not claim it out of shyness or shame. To make ends meet, according to the statistical office, older people currently need around 800 euros per month for living expenses and their home.
Who should get a basic pension?
In the start year 2021, 1.3 million people should be able to receive a basic pension, 70 percent of them women. The basic pension is aimed at people with mini-pensions who have at least 33 years of pension contributions from employment, child-rearing or care work.
The surcharge should be staggered from 33 years of contributions – it should reach the full amount for 35 years of contributions. In addition, basic pensions should only be given to those with an income below certain limits (see below).
What is the income test all about?
The basic pension should only be given to people with an income below certain limits. This is captured by the so-called income check. In this, the taxable income is to be checked, for example through rental income, a pension, or amounts of occupational or private provision. Added to this is the tax-free portion of pensions and capital gains that are not already included in taxable income.
Advertising costs and taxes for health and nursing care insurance are deducted. As a rule, information about taxable income is only available for the previous year, new pensioners may not receive the basic pension in the first year – the income test should, however, be repeated once a year.
What are the planned income limits?
Only those whose monthly income as a pensioner is a maximum of € 1,250 (for singles) or € 1,950 (for spouses or life partners) receive the full premium. Income above this limit should count towards 60 percent of the basic pension. For a single person’s income of 1,300 euros, 50 euros would be credited to 60 percent – the basic pension would be 30 euros lower.
If the income is more than 1,600 euros or 2,300 euros, it should be fully credited to the basic pension surcharge. If, for example, a couple has an income of 2,400 euros, the basic pension is reduced by 100 euros.
How should the basic pension be calculated?
The process is quite complicated (see below). Only times with contributions corresponding to 30 to 80 percent of the average annual income are included in the calculation. In the past year, this range was roughly 972 to 2,593 euros gross.
How exactly does the calculation work?
In principle, the earnings points, also known as pension points, are used to calculate the total pension. An average earner gets one such point every year. For each point there is currently a pension of € 33.05 in the west and € 31.89 per month in the east.
For periods with only low pension entitlements that trigger the basic pension, the earnings points are increased: namely for 35 years to twice the average value of the points earned – but at most to 0.8 points. Then the value is reduced again, by 12.5 percent. The coalition wants to uphold the so-called equivalence principle, according to which the pension actually depends on the amount of the contributions.
What can that mean, for example, with a pension of around 750 euros?
It depends on whether you live in western or eastern Germany. This is clear from two examples.
- Example 1: a secretary in the west with 38 years of insurance and two children. The basic pension is only taken into account for 26 years, because in the other years it only came to contributions that are less than 30 percent of the average wage. But in the 26 years it came to 70 percent. The pension is 754 euros – the basic pension supplement is 75 euros.
- Example 2: a saleswoman in Dresden with 39 years of work with 60 percent of the average wage without other income receives a pension of 746 euros – and a surcharge of 195 euros.
How much are the costs – and how big is the administrative effort?
In the starting year 2021, the basic pension should cost taxpayers 1.3 billion euros. Finance Minister Olaf Scholz (SPD) actually wanted to finance this money through a financial transaction tax. But it is not in sight. Now it comes from the federal budget, to the anger of the Union.
With 1.3 million recipients, this means an average surcharge of around 83 euros per month. The total federal costs for the legislative package are expected to increase to 1.9 billion euros per year by 2025.
You shouldn’t have to apply for the basic pension. The data comparison for the income check should also work automatically. Pension insurance still has a lot to do. It should take around 640 employees a year to check whether people who are already drawing a pension also receive the bonus.
650 employees are supposed to check foreign incomes with existing pensioners, which cannot be automatically adjusted. Inquiries to the Federal Central Tax Office and credit institutions are also provided for the required information on investment income.