The German government has recently announced an increase in social security contributions, effective from January 1, 2025. This decision is expected to impact a wide range of employees, particularly those earning above the income threshold.
The increase, which will see contribution rates rise by 0.1 percentage points, has been framed as a necessary measure to ensure the sustainability of the social security system amid rising costs and demographic changes. Verena Bentele, President of the German Pension Insurance (DRV), has highlighted the disparities in contribution rates, noting that average earners currently contribute 19.2 percent towards pension, health, and long-term care insurance, while higher earners pay a reduced rate of 13.5 percent. Bentele emphasized that this structural inequality indicates that wealthier individuals are not contributing sufficiently to the social systems, which are designed to operate on principles of solidarity.
The adjustments to social security contributions will also affect pensioners, particularly those receiving reduced earning capacity pensions. Starting in 2025, the income limits for additional earnings for approximately 1.8 million pensioners will be revised. The new limits will be calculated based on a reference figure that reflects the average earnings of the insured individual, marking a shift from previous methods of calculation.
For pensioners with a full reduction in earning capacity, the new limit will be set at €19,661.25 gross annually, or €1,638 per month, for those who can work a maximum of three hours a day. Partially disabled individuals, who can work up to six hours daily, will have a limit of €39,322.50 per year, equating to €3,276.81 gross monthly. Additionally, there will be individual supplementary income limits based on the highest earnings in the last 15 years before the onset of reduced earning capacity, allowing for potentially higher limits in specific cases.
The cabinet's decision is part of a broader legislative process that requires approval from the Bundesrat, with discussions expected to take place on November 22. The approval is contingent upon the passage of tax relief plans proposed by Finance Minister Christian Lindner. The ongoing negotiations within the coalition government, particularly among the Greens, have raised concerns about the timely implementation of these changes.
Labor Minister Hubertus Heil's ordinance, which outlines the new contribution assessment thresholds, reflects a routine adjustment based on wage trends. However, the upcoming increase is notable, with the Ministry of Labor projecting a wage growth rate of approximately 6.4% for 2023. This adjustment will result in higher contributions for those earning above the set thresholds, which are crucial for funding the social security system.
The increase in contribution assessment ceilings will particularly affect high earners, who will see a larger portion of their salaries subject to social security contributions. The general pension insurance contribution assessment ceiling will rise to €8,050 per month, up from €7,550 in 2024. Similarly, the compulsory insurance limit for statutory health insurance will increase to €6,150 per month, compared to €5,775 previously.
For individuals earning at the top of the income threshold, the monthly contributions will rise significantly. For instance, the pension contribution will increase from €1,403.61 to €1,497.30, while health insurance contributions will rise from €907.43 to €971.70. The total monthly contribution burden for high earners will increase by €187.40, amounting to an additional €2,248.80 annually. The VdK social association has supported these increases, arguing that they are essential for maintaining the financial health of the pension fund, which would otherwise face a revenue shortfall of around €2 billion without these adjustments.
The changes reflect a growing recognition of the need for equitable contributions to social systems, particularly as demographic shifts and economic pressures continue to challenge the sustainability of these programs. As the government navigates the complexities of coalition politics and public sentiment, the upcoming adjustments to social security contributions will play a critical role in shaping the financial landscape for both employees and pensioners in Germany.