Will the pension fall to basic security level?

Anyone who is employed as an employee until the age of 67 with a continuous income can expect to receive a net pension amounting to 50 percent of the last net income in the not too distant future, if he or she becomes a pensioner. This allows the average wage earner to live a dignified and self-determined life – as the federal government puts it – at basic security level.

“Old-age poverty is almost non-existent in this country!”

Anyone with a net total income of EUR 760 or more per month is not considered to be absolutely poor – anyone with a net total income of more than EUR 950 is also no longer considered to be relatively poor, and anyone with a net total income of more than EUR 1,150 is not considered to be relatively poor,
so he is also no longer considered to be at risk of poverty. If the income is lower, the German Pension Insurance recommends checking whether there is a right to a basic security pension.
This includes all benefits that are also paid in the case of social assistance. Old-age poverty seems to be conceivable for the legislator only if, by mistake, no application for basic security
pension has been made. This includes EUR 382 for the living requirements of single persons in their own household. Spouses and partners receive less (345 euros) and adult household members even less (306 euros), plus the warm rent for adequate accommodation – for a single person this is one room.

A reduction is made if the rental costs are too high, which forces you to move. Some communities also pay the broker to find housing beyond the community boundary. In the past, they also used to pay for a ticket for the crossing to America on the Titanic 3rd class, or for sewing and cookery training followed by a trip to Deutsch-Südwest with the Woermann line with secure marriage prospects. Something else is the crediting of all income, including, for example, income from Riester pensions. However, the single person must first use his or her assets until no more than 2,600 euros are left over. Poverty would thus be conceivable in principle if the employment office were to cut the subsistence minimum – as a sanction for refusing retraining, for example – by up to 30 percent. After all, even those who have completed an academic degree can hardly avoid retraining as welders or working as temporary workers in the asparagus fields or in other precarious jobs if they become unemployed.

The statutory pension is “safe

Those who currently receive their personal pension information are offered the prospect of a pension amount if they maintain a constant average high
The amount of the pension will be reduced in the next few years according to the will of the legislator.
by 12 percent.
A further reduction occurs because only a basic allowance of 8,354 euros is free of income tax and solidarity surcharge, so that by all means up to 15 percent tax deductible
additionally reduces the pension that will be fully taxable in the future.

In addition, there is the deduction of up to more than 10% for social security contributions, such as statutory health insurance. The so-called benchmark pensioner with an average income is currently paid a monthly pension after 45 years. 1,266 euros – in fact, he can only expect to earn around 950 euros net in real terms in future, i.e. a quarter less. Even employees with average incomes around the up to more than 30,000 euros annual gross salary thus have “the best prospects for a life without old-age poverty”, i.e. at basic security level.

Pension information is subject to deductions of up to more than 42 percent

Current surveys show that more than 90 percent of younger people and those with only average incomes are completely unaware of taxation and the amount of their expected net pension in relation to their net income – and therefore have no idea of how large the gap will be in old age.

Of the respondents with net incomes below 2,300 euros, only 4 percent even knew that the pension was taxed. The annual pension information appears in such a way
incomplete that pensioners are not even beginning to be properly informed.

Pension illusions about the actual final disposable income

Only 2 percent of the working population can correctly state that at today’s retirement date, 68 percent of the pension would be taxable, with annual increases to 100 percent
from the year 2040. Almost nobody knows that pension increases are always fully taxable. Only 38 percent of respondents can accurately classify pension levels, for example, that today’s 20- to 34-year-olds can receive an average of around 38 percent of their last net salary, while 50- to 65-year-olds can still receive around 51 percent.

In the case of these, too, however, future pension increases will not compensate for purchasing power, so that these pensions, too, will lag behind wage trends in real terms, and increasingly
The majority of employees believe that they have made enough provisions, despite their lack of knowledge about their personal situation.
pension level, in particular a further reduction of up to more than 25 percent in the net pension level – compared with those who currently retire. But that is what you want to give them
not say it too clearly, so as not to deprive them of the hope of being able to close the pension gap by making provisions.

From the point of view of the state, it is in fact sufficient if the additional provision does not secure the standard of living, but at least saves the taxpayer from having to top up to the level of basic security. In addition, productivity in the economy has been rising for around 15 years, but without any significant participation by employees – correspondingly
contributions to pension insurance remained low.

In addition, pensions have been decoupled from wage increases, so that pension adjustments only take wage developments into account to a lesser extent. The future gap between pension and earned income will widen, but this is not apparent from the state pension information. It could be mistakenly believed that this was already taken into account in the figures provided, but this is not true.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

www.network-karriere.com (published in Network-Karriere, issue 02/2023, page 24)

E-Paper Link: https://www.yumpu.com/de/embed/view/RDgmyXQbeAVIGrpu

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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