Pension: Nine myths you should know

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Myths and misconceptions about pensions are stubbornly intertwined. An overview of what you need to know about retirement planning.

Frankfurt – No other topic is so complex and discussed as much as pensions in Germany. Much of retirement is associated with poverty in old age. According to the Federal Ministry of Social Affairs, every fifth person receiving a pension has less than 500 euros per month at his disposal. With the Corona pandemic, rising costs for consumers and terrible rental prices, the burden on the wallet is enormous.

But getting an overview of the pension system is not so easy. There are many misconceptions about old-age provision in the Federal Republic. An overview of the myths retirees should know.

1. Pension provisions in Germany: does the pension come automatically?

A common assumption is that the annuity is automatically paid into the account each month at retirement. However, this is not true.

Some misconceptions and myths have persisted about annuities for years. Contrary to many assumptions, taxes must also be paid for the pension. (icon image) © Frank Hoemann / Sven Simon / Imago Images

All statutory pension insurance pensions must be submitted in writing. German pension insurance recommends submitting an application for a pension approximately three months before the intended start.

2. Pension provisions in Germany: should the pension be taxed?

You should also pay attention to pension taxes. The view that pensions are tax-exempt is widespread but wrong. Annuities are generally subject to income tax or wage tax. However, the funds are not fully taxable.

Anyone who retired before 2005 only had to pay tax on 50 percent of their total pension. This percentage increases every year. From 2020, the share of the taxable pension will increase by only one percentage point per year, previously by two percentage points. So if you retire in 2022, you have to pay tax on 82 percent of your pension. Anyone who retires in 2040 or later should expect that the pension will be fully taxed.

2022 82 percent
2023 83 percent
2024 84 percent
2025 85 percent
2026 86 percent
2027 87 percent
2028 88 percent
2029 89 percent
2030 90 percent

3. Pension: Does staying in a sanatorium reduce the delayed pension?

Many assume that staying in a rehabilitation clinic will reduce pensions in the future. On the contrary: during rehabilitation, compulsory contributions are paid by the pension insurance in the amount of 80% of the previous gross salary, which increases the entitlement to the subsequent pension. This was announced by the social association VdK Baden-Württemberg. In addition, successful rehabilitation can lead to an increase in the length of work and therefore a higher pension.

4. Is there a pension until the end of your 15-year work period?

You do not have to have worked for at least 15 years to receive a pension from the statutory pension insurance system. The minimum insurance period for a standard old-age pension is five years – and since 1984.

From 1947 to 1963 Gradual increase up to 67 years
from 1964 67 years

5. Can you earn unlimited money in addition to your pension?

Can I continue to work as a retiree? Anyone who claims or receives a pension before the legal retirement age due to a reduced earning capacity can earn a maximum of €6,300 per calendar year without reducing the pension. Those who earn more could lose part or all of their retirement benefits. Once the standard retirement age is reached, there is no longer a limit.

Speaking of which: Should everyone work until age 67? This is not entirely true. Only from the year of birth 1964 the standard old-age pension became 67 years. For those born between 1947 and 1963, the standard retirement age will be gradually raised. Anyone born before 1946 is not affected by the regulation. Early entry into the old-age pension is also possible, but only with deductions.

6. Can you retire at 63 after 45?

Anyone who is insured for a particularly long period, for example after 45 years, can generally retire early. However, as the retirement age is gradually raised, the entry age also changes with the year of birth, according to the German pension insurance.

Anyone born before 1953 can retire at age 63 after 45 years of insurance without deductions. As of the year of birth 1964, retirees can retire at 65 years of age. However, the German pension insurance indicated that the old-age pension for long-term insured people cannot be withdrawn early.

7. Pension provisions in Germany: Are widows’ pensions granted only to women?

Also, the assumption that only women receive widows’ pensions is consistent and erroneous. Because: Since 1986, both women and men have had equal rights in the pension insurance system. Men and women are entitled to a survivor’s pension if the husband has paid contributions for at least five years.

In the so-called quarter of death, that is, in the first three months after death, there is a full pension for the heirs. After that, your income will be taken into account.

8. Are the last years before retirement particularly crucial?

It is often said that the amount of the pension consists mainly of the last years of work. This is also a mistake. The pension amount is calculated from the entire insurance period. All years of insurance are treated equally.

9. What does raising children mean for retirement?

Those who take care of children and therefore work less or not at all are entitled to a pension. The German pension insurance explained: “For the time you are raising children, you will be positioned as if you had paid contributions based on the average income of all insured persons.”

If the child was born before 1992, then up to two years and six months of child-rearing periods are counted for each child. If the children were born in 1992 or later, the credit is up to 3 years for each child according to the pension insurance. “After one year of raising children, he brings you a pension of 34 euros per month,” she added. But be warned: You have to apply for parental leave yourself. Good news for retirees: from July 2022 pensions will be increased in Germany. Federal Cabinet began the increase. But there are clear criticisms, too.

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