What is the current situation?
The German pension system is currently financed by a contribution of 18.6 percent of the gross salary of all employed employees. Half of this amount is borne by the employee and the other half by the employer. As these incomes are not enough to pay all pensions, the State injects more than 100 billion euros per year. It is the largest spending item in the federal budget.
But not all employees contribute to the system. Public servants and many self-employed workers are excluded. Some professional groups, such as artisans, teachers, educators, midwives, nurses, artists, journalists and fishermen, have to contribute to pension insurance even if they are self-employed. The prerequisite for this is a certain minimum income, which is usually very low, around the level of a mini-job.
Whoever is compulsorily insured has two options. He can pay the so-called standard amount of 657.51 euros per month (half is sufficient for the first three years of self-employment) or the normal 18.6 percent of his gross salary. As self-employed workers do not have an employer, they must pay the full pension insurance contribution. Artists and publicists are an exception. They can register in the artists' social security fund, which then covers the employer's share.
For the rest of self-employed workers, participation in statutory pension insurance is voluntary. You can pay between 84 and 1,283 euros per month, but, of course, you will only receive the legal pension if you have contributed during your working life. Many professional groups, such as doctors and lawyers, also have their own pension funds through chambers. Although they are organized privately, they operate on the same principle as the German pension insurance.
What should change in this situation?
Economists such as Marcel Fratzscher, president of the German Institute for Economic Research (DIW), call for all self-employed workers to have to contribute to German pension insurance in the future. Economists also argued for this in their annual report last year. Experts have three main arguments:
1. More income for pension insurance
If more employees contribute, the pension insurance income automatically increases. Consequently, it would be easier to finance the system despite demographic change. Subsidies from tax dollars could decrease.
2. More justice
The German pension system is currently a patchwork. Normal employees contribute to the German pension insurance, civil servants receive a state pension, and self-employed workers have state or private pension insurance or no pension insurance at all. This makes it more difficult for the federal government to refine the system because each change must be designed for all three variants. Until now, in addition to complications, this has also led to injustices, because, for example, laws influence the amount of pensions and pensions to varying degrees.
3. More security for the self-employed
Poverty in old age is a greater problem among the self-employed than in other sectors of society. In addition to often low labor income, this is also because many people do not make enough provisions for old age because they are not obliged to do so. There are no exact figures on the proportion of self-employed workers among those receiving basic security. About ten years ago it was around 20 per cent, although the self-employed only made up around 10 per cent of all pensioners, a disproportionately high figure. It can be assumed that this has not necessarily improved during the coronavirus crisis. Compulsory insurance would not only improve the situation of the self-employed, but would also reduce public spending on basic security: a total of 9.5 billion euros this year.
What is the federal government doing?
According to the coalition agreement, the traffic light coalition plans to make pension insurance mandatory for the self-employed. However, this does not have to be done through the German pension insurance. Self-employed workers can also take out insurance through pension funds or completely privately; The main thing is that they show that they are making provisions for old age. During this legislative period, i.e. no later than summer 2025, the corresponding law should be approved.
Furthermore, the Federal Minister for Social Affairs, Hubertus Heil (SPD), recently expressed his willingness to impose an obligation on civil servants and the self-employed to participate in German pension insurance. However, there are still no concrete drafts in this regard.
What would a pension insurance requirement mean?
One would assume that such a change in the law would not be approved for those currently self-employed, but only for those who are newly self-employed. In this way, the income from the statutory pension insurance would not increase overnight, but would do so slowly.
In their annual report, the economists assume that the traffic light coalition's plans will guarantee a positive balance for the statutory pension insurance until all new self-employed people retire from 2080. Even then it would have a slightly positive effect. There are two reasons for this: first, self-employed workers have on average higher incomes than salaried workers and would therefore make more contributions. Secondly, their life expectancy is no longer than that of normal employees. Therefore, the self-employed would not incur higher expenses.
If all new self-employed people had to contribute to statutory pension insurance, economists expect around three million additional contributors in the future. Currently, 39.2 million people contribute to pension insurance. Economists suggest that not only new self-employed workers are required to do so, but also those who already work as such; However, an age limit should prevent self-employed workers who are close to retirement from having to pay contributions.
However, there are no exact figures on how many billions the burden on pension insurance and/or the federal budget would be reduced in this way.
What would an obligation mean for the self-employed?
Because the self-employed landscape is so fragmented, there are several effects. Little will change for the self-employed who, like employees, already contribute to private pension plans or the artists' social security fund or are already insured in the statutory pension insurance.
The situation is different for the three million self-employed people who, it is estimated, are not yet insured in this way. Then you would have to pay contributions. As self-employed workers do not have a permanent employer, they would also have to pay the full contribution: half for employees and half for employers. The costs would be double: 18.6 percent of gross salaries. This would put great pressure on low-income self-employed workers. Those who have not taken any precautions often do so not out of convenience, but because the financial burden would be too high for them.
A mandatory pension insurance model should therefore contain variants that do not impose an undue burden on self-employed workers, for example through reduced contributions or other models.
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