Pensions in Germany


The German pension system, known as the "public retirement insurance," was established over 100 years ago by Chancellor Bismarck, making it the world's first formal pension system. It has been successful in providing a high and reliable level of retirement income and has served as a model for numerous social security systems globally. Originally designed as a scaled premium system, it became a pay-as-you-go system in 1957, mandating participation for all dependent employees and certain self-employed groups. The system is characterized by a fragmentation in terms of institutions, coverage, contributions, and benefit levels.
Pensions in Germany are based on a “three pillar system”.
  • First pillar: mandatory state pension insurance. This part of the basic social security system. All employees and employers pay a percentage of salaries into this system.
  • Second pillar: voluntary occupational pension insurance
  • Third pillar: private insurance

    Mandatory state pension provision

The scheme is based on the pay-as-you-go model. Funds paid in by contributors are not saved but are used to pay current pension obligations.
Civil servants in Germany do not pay any contributions themselves but their salaries are correspondingly lower than those in the private sector.
The retirement age in Germany is currently 65, but will gradually rise to 67 by 2031 depending on year of birth and how long contributions have been made. Each missing year results in a 3.6% reduction in the pension entitlement. The German Institute for Economic Research has been arguing that the retirement age needs to have been 70 by 2025, and in 2025 the economics minister Katherina Reiche gave support to such an increase, creating tensions in the governing coalition.
The state scheme is financed by a payroll tax known as "social security contributions".The social security contributions also include contributions to statutory unemployment, health and long-term care insurance.The contributution for pension insurance in 2024 was 18.6% of pay up to the social security contribution ceiling of €90,600 and €89,400. The amount is paid half and half by employer and employee contributions.
The amount paid to retirees is based on average salaries. The German pension insurance agency publishes the value of each year’s contribution. This is then multiplied by the number of years contributed and the percentage of the average salary earned during the person's lifetime. The average pension in 2012 was €1,263.15 per month. The maximum pension for someone having earned twice the average salary would be €2,526.30.

Voluntary occupational pension provision

The Voluntary Occupational Pension schemes were created under the Company Pensions Law in 1974 and are a benefit granted by a company to its employees. Voluntary schemes can fall into different categories:
  • Defined benefit
  • Defined Contribution
  • Contribution with minimum benefit
The schemes can be structured in various ways:
  • Direct Grant
  • Support Fund
  • Pension Company
  • Direct Insurance
  • Pension Fund
In 2009 contributions up to €2,500 were tax free. A further €1,800 in contributions to Direct Insurance schemes are tax free. About 50% of workers in Germany are covered by these schemes.
According to the Deutsches Institut für Zeitwertkonten und Pension Lösungen, a consultancy, "in almost all firms, 30 to 50% of the capital required to meet the commitments made in days when the interest rates were higher is missing". The Germans have invested 500 billion euros in Voluntary Occupational Pension and 170 to 225 billion euros are needed to fill in the coverage gap.

Private provision

Private pension schemes in Germany are personal funded pensions. The funds are protected by law and cannot be seized by creditors or the state. They are also not inheritable. Payments into these funds benefit from a government sponsored tax credit of €154 per year per adult and up to an additional €300 if the fund beneficiary has children. The most popular form of private pension provisions is the so-called. The annual government expenditure for the tax credits is at around €7bn. An alternative government sponsored private pension scheme is the, which is specifically, albeit not exclusively, designed for self-employed people, who are usually not eligible for the Riester Pension.
Germans can take early retirement if they agree to forgo a percentage of their state pension.

Pension Reform 2025 (Rentenpaket 2025)

On the 06. August 2025 the federal governement of Germany agreed on the "Rentenpaket 2025" in order to build a fairer and more stable state pension system which aims to uphold a stable Pensionlevel at 48% by 2031. The reform package by the coalition of CDU/CSU and SPD contents the lifting of the assertion ban, that should make it possible and easier for pensioniers to work beside their pension, also a part is the "manternal rent III" intended to help mothers who gave birth to children before 1992 to finance their childraising retrospectivly and the financing of these reforms is provided by the federal Budget of Germany which will be an amount in the tens of millions.