The German Federal Cabinet has approved significant adjustments to social security contributions, which will take effect from January 1, 2025. This decision comes amid ongoing discussions about the stability of the current coalition government.
The adjustments approved by the German Federal Cabinet are expected to impact a wide range of social insurance programs, including pensions, health, and long-term care insurance. The aim of these adjustments is to address structural inequalities in the contribution system.
The President of the German Pension Insurance (DRV) emphasized the need for a general increase in contribution rates to ensure the sustainability of the social security system. Currently, average earners contribute 19.2 percent towards pension, health, and long-term care insurance, while those with incomes exceeding the income threshold pay a reduced rate of 13.5 percent.
The adjustments include a notable increase in the contribution assessment ceilings for various social insurance programs. For instance, the contribution assessment ceiling for general pension insurance 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.
These changes reflect a broader trend of rising wages, with the Ministry of Labor projecting a wage growth rate of approximately 6.4% for 2023.
The new income thresholds will also affect pensioners receiving reduced earning capacity pensions. Starting in 2025, the limits for additional income for the 1.8 million pensioners in this category will be recalibrated. For those with a full reduction in earning capacity, the new limit will be set at €19,661.25 gross per year, while partially disabled individuals will have a limit of €39,322.50 per year.
The increase in contribution rates and assessment ceilings is particularly significant for high earners, who will see a substantial rise in their monthly contributions. The VdK social association has expressed support for these changes, arguing that the increased burden on high-income earners is justified. Without these adjustments, the pension fund would face a revenue shortfall of around €2 billion, which could jeopardize the financial stability of the system.
The ordinance approved by the cabinet must now pass through the Bundesrat, with discussions expected to take place on November 22. However, the approval is contingent upon the Bundestag passing tax relief plans proposed by Finance Minister Christian Lindner. The proposed tax reforms have sparked controversy within the coalition, particularly among the Greens, who have raised concerns about adjustments to tax rates in line with inflation. This political dynamic adds an additional layer of complexity to the legislative process surrounding the social security contributions.
As the government navigates these challenges, the implications of the increased contributions will be closely monitored by various stakeholders, including financial institutions and social advocacy groups. The adjustments are poised to reshape the landscape of social security in Germany, with potential ripple effects on the broader economy and public sentiment regarding wealth distribution and social responsibility.