Five things you need to know about the raise – the exact terms in law

Berlin.The pension increase will come on July 1st. After that, pensions will rise by 5.35% in the West and by 6.12% in the East. In detail, however, there are always questions about whether it is a basic pension or a disability pension. Five things you should know about an increase in pension.

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Read more after the announcement

1. Thank you or complaint? Both are useless. The pension increase is calculated and has a lot to do with the evolution of wages in the previous year.

An increase in the pension is not the same as a wage increase in which the boss can decide whether to become more or less generous. How does an increase in pension appear as a result of fixed rules. Calculations are made using a very complex equation, but, in a rough sense, the following applies: in the case of pensions, the evolution of wages in the previous year is always reproduced. If wages rise sharply, retirees also benefit in a similar way the following year. In this way, pensions and wages must remain in harmony.

This has proven itself in principle, but it also means that there is no reaction mechanism in pension insurance if – as at present – prices rise suddenly very sharply. This does not mean that politics cannot help in such a situation. The way forward is to give retirees a lot of attention in relief packages put in place by the federal government in response to high energy prices and inflation. Many here criticize the neglect of retirees. However, it is unclear if, when and how improvements will be made.

Read more after the announcement

Read more after the announcement

2. This increase in pensions has been fair for generations

The president of the German Pension Insurance Association, Gondola Rosbach, spoke of “one of the highest pension adjustments in Germany since the introduction of pension insurance”. Aside from inflation issues, this is realistically true. However, the pension increase would have been a little higher if the Traffic Light Coalition had not included a specific measure in the pension package: it reintroduced the catch-up factor that the Grand Coalition had suspended.

Hartz IV, citizen entered and the grand prize question

The traffic light coalition between SPD, Greens and the FDP wants to convert Hartz IV into a citizen allowance. In the first step, penalties are suspended. What are the steps to follow? The most important thing in the questions and answers.

what is he talking about? As indicated, the pension is always based on the evolution of wages in the previous year. This means that as a result of a severe economic crisis, there may also be a sports deficit in the pension. And to protect people from this, the state gives a pension guarantee. This does not include pension cuts.

Originally, the rule was applied that – if the pension guarantee was in effect – future increases in pensions would be correspondingly lower. The Grand Alliance has suspended this rule, and the traffic light is back on it now. As a result of the Corona crisis, there was a zero-sum round for retirees in 2021 – only the pension guarantee prevented the reduction. With the reintroduction of the catch-up factor, the pension increase is now somewhat less. In the logic of pension insurance, this is a fair balance between generations.

3. A person who has worked for many years and receives a small pension can hope to receive an additional basic pension.

A basic pension is intended to improve old-age benefits for people who have worked for a long time but still receive only a small pension. Although the law has been in effect since January 1, 2020, pension insurance is still required until the end of 2022 before all insured persons are screened to determine if they qualify. This is also because basic retirement law is complicated.

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Read more after the announcement

The basic pension is a supplement to the pension calculated individually. Anyone who can show contributions from working, raising and caring for children for at least 33 years — and earning less than 80 percent of the average salary of all insured persons — qualifies.

However, to calculate the basic pension, the years in which the employee earned at least 30 percent of the average salary is used. The full basic pension is only available with at least 35 years of contributions, from the age of 33 begins in stages. In order to avoid unfairness, income is also taken into account from a certain point. At the end of this process, there may be an individual supplement to the pension. Those to whom this status applies will likely receive a decision by the end of 2022. Payment will then be made retroactively until January 1, 2020. Examination is ongoing. No one has to apply to pension insurance – it won’t speed things up either.

4. Improvements to the disability pension do not affect everyone – they will come later.

A disability pension is intended to protect those who are no longer able to work due to illness or accident. There are also improvements here in the recently approved pension package. However, it does not apply to everyone and will only come into effect within two years, i.e. on July 1, 2024.

The so-called supplementary period is important for a disability pension. They calculate pensions for reduced earning capacity as if the persons concerned had continued to work after the onset of reduced earning capacity. In the past there were improvements here, which benefited the new retirees of the time, but not the current retirees. It must now be compensated for.

Read more after the announcement

Read more after the announcement

For those who entered a disability pension between January 1, 2001 and June 30, 2014, there will be a fixed premium of 7.5 percent from mid-2024. For those whose pension starts between July 1, 2014 and December 31, 2018, it should be 4.5 percent.

Many former retirees are already disabled by old-age pension payments. For this reason, the planned improvements also take into account existing old-age pensions that were previously awarded a disability pension with a pension starting from 2001 to 2018.

5. Pension remains a construction site – but not much will happen in the coming years.

More old people and not many young people paying into the pension fund: This demographic change poses significant challenges to the pension fund. The system remains very stable in the coming years, albeit with significant support from the federal budget. The Traffic Light Coalition didn’t agree on really big reforms to the coalition agreement – also because the parties involved had very different ideas. In the upcoming legislative period, the pressure for reform will be greater.

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