1.3 million pensioners in Germany have been receiving the newly created basic pension since January 2021. Sample calculations show how high the surcharges on the basic pension are.
On January 1, 2021, one of the biggest reforms of the pension system in recent years started: the basic pension for pensioners with low earnings. At the beginning, around 900,000 women and 400,000 men should get the serve. How much extra money retirees can expect.
The plan for a surcharge for people who receive a mini-pension despite long contribution periods has been around for a long time. Union and SPD finally agreed on a basic pension model in autumn 2019.
The most important provisions:
The pension surcharge is only given to those who have earned below average and can prove at least 33 years of pension contributions from employment or raising children. Time spent caring for relatives is also included in the so-called basic pension periods.
The authorities also take mini-jobs that are subject to pension insurance into account, as well as military service or periods of political imprisonment in the GDR. Periods of receipt of unemployment benefit, however, do not count.
In order to receive the full basic pension, insured persons must be able to demonstrate at least 35 years of basic pension periods. At 33 years there are deductions.
The provisions provide that beneficiaries have earned a maximum of 80 percent of the so-called average annual salary over the entire period. In 2022, this fee will be EUR 38,901 and will be adjusted annually. Anyone who earns exactly the same amount as the average salary in a year receives 1.0 earnings points (EP; often referred to as “pension points”). The amount of the EP is important for calculating the pension and thus possible supplements for the basic pension. Since July 2022, the value of an EP has been 36.02 euros in western Germany and 35.52 euros in the new federal states.
However, the federal government has capped the basic pension payments for cost reasons: only those whose monthly income as a single pensioner is a maximum of 1250 euros receive the full surcharge. In addition to retirement benefits, this also includes rental income, investment income and other pensions. For married couples or life partners, the monthly income limit is 1950 euros.
If you have a higher income, your basic pension will not be canceled immediately. However, he has to accept that 60 percent of the amount that is above the exemption amount will be credited.
The taxable income (zvE) is used as a basis for the data comparison between the pension insurance and the tax authorities. In addition, the authorities add the capital gains taxed at a flat rate above the saver’s allowance of 801 euros. In the final determination, however, the DRV Bund deducts some items from the total income – such as income-related expenses, health insurance contributions and extraordinary expenses such as payments for relatives in need of care. All of this lowers the zvE.
Tax-free income, for example from voluntary work or from a mini-job taxed at a flat rate, is not taken into account in the zvE.
An example: A single pensioner has a monthly income of 1450 euros. Income up to 1250 euros is not taken into account. 60 percent of the income in excess of this is deducted from the basic pension. In our example, EUR 200 is above the income limit, of which 60 percent is EUR 120. The supplement for the basic pension is reduced by this amount.
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How much is the basic pension?
The Deutsche Rentenversicherung Bund (DRV Bund) writes in a brochure: “The amount of the basic pension is calculated individually. There is no minimum amount.” For a maximum of 35 years, the pension entitlement acquired through contributions will be doubled, but limited to 80 percent of average earnings. “In the end, the surcharge will be reduced by a flat rate of 12.5 percent.”
According to this “formula”, the maximum possible basic pension surcharge is calculated at 441 euros gross per month.
In order to explain the calculation of the basic pension surcharges, a brief excursion into financial mathematics is necessary. In order not to overcomplicate matters, the following presentation only mentions the basic factors.
The basic pension surcharge is calculated according to a two-stage scheme – here using the example of employee A., who ultimately receives a basic pension surcharge of 340.39 euros.
1) general pension formula
In simplified terms, it reads: Monthly pension = earnings points x current pension value
Specifically: Employee A. earns exactly half of the average wage for 35 years – this means that he earns half a wage point (EP) every year. That’s 17.5 EP at 35 years of age. In the west, each EP is worth 36.02 euros (as of summer 2022). This gives A. a gross pension of 630 euros after 35 years.
2) Formula for determining the supplement to the basic pension
With the basic pension, the pension entitlement earned through contributions is doubled for a maximum of 35 years. But there is a limit: It is 80 percent of average earnings – i.e. 0.8 EP per year. Finally, 12.5 percent is deducted from the determined basic pension surcharge.
The way of calculation:
The annual 0.5 RP determined above is increased to 0.8 EP annually. The sum of the EP is multiplied by 36.02 euros. This intermediate result is reduced by 12.5 percent – i.e. multiplied by 0.875. The resulting amount is the basic pension supplement to the regular pension.
The formula for this: monthly basic pension supplement = 0.3 EP x 0.875 × 35 years × 36.02 euros = 340.39 euros
Overall, employee A. receives a monthly gross pension of 970 euros from the old-age pension and the basic pension surcharge. Health and long-term care insurance are also deducted from the amount.
Note: When determining the basic pension surcharges, the applicant’s assets are left out.
The responsible Federal Ministry of Labor and Social Affairs uses example calculations to show how high the current basic pension is in specific cases.
After 39 years of contributions, the woman’s old-age pension amounts to EUR 831 (gross – i.e. before deducting health and nursing care insurance). Despite being temporarily unemployed, the civil engineer meets the requirements of at least 33 years of basic pension periods. Therefore, the woman can benefit from the basic pension surcharges. With the basic pension, she receives 1,049 euros per month. The monthly surcharge is therefore 218 euros. Assuming the woman gets retirement benefits for 20 years, the surcharges without any adjustments add up to 52,320 euros.
Despite the supplement, his retirement income is not enough for the unskilled worker to live on. For such cases, the federal government has found an extra regulation: Anyone who, after 33 years of contributions, despite the basic pension, still has income below the state basic security benefits from an allowance that is not offset against the basic security. It is 100 euros plus 30 percent of the higher income from the statutory pension. But there is a cap: The exempt amount is limited to 50 percent of the Hartz IV rate of 449 euros, which will apply from January – i.e. to 224.50 euros.
A single woman worked full-time for 40 years. In doing so, she earned arithmetically 40 percent of the average wage. This earned her 0.4 EP per year. According to the current legal situation, the woman will receive an old-age pension of 576 euros per month in 2022. (The calculation formula again: 40 years x 0.4 EP/year = 16 EP at 36.02 euros each results in a monthly pension of 576.32 euros.)
Together with the basic pension, the woman comes to 1017 euros per month. The surcharge is therefore 441 euros per month. (Here the formula: 0.4 EP x 0.875 × 35 years × 36.02 euros = 441.25 €). This corresponds to a percentage increase in the “actual” old-age pension of a whopping 76.52 percent.
The DRV Bund also provides clear figures for determining the basic pension surcharges. Some examples:
The supplement for the basic pension is almost 331 euros (formula: 0.2625 earnings points × 35 years × 36.02 euros). Overall, the woman has a monthly basic pension of 1,051 euros.
The average 0.6 earnings points (EP) are increased to 0.8 EP for these 25 years. There is a surcharge of 0.2 EP, which is reduced by 12.5 percent – strictly according to the specifications. The supplement for the basic pension is around 155.40 euros (formula: 0.2 EP x 0.875 x 25 years x 35.52 euros).
The calculation and payment of the basic pension presents the DRV with major logistical challenges. The authority has to hire around 1,000 new employees for this. Therefore, the DRV needs a certain amount of time before all beneficiaries can benefit from the basic pension surcharges.
The following schedule applies. Anyone who was already retired in 2020 will receive the calculation of the basic pension supplement by the end of 2022. Then the payment will also be made – those entitled can look forward to considerable amounts – because they will receive the supplement retrospectively from January 1, 2021.
All statutory pensioners who retire from 2021 onwards had the supplement calculated and paid out at the start of their retirement.
The federal government makes it easy for those who are eligible – they do not have to apply for the basic pension. The state carries out an automatic income comparison between the tax offices and the DRV.
