The German government plans to implement significant changes to social security contributions starting in 2025. This is part of a broader strategy to address funding shortfalls in pension, health, and long-term care insurance.
The Federal Cabinet has approved a measure to raise contribution rates by 0.1 percentage points. There are mixed reactions to this move from various stakeholders. The President of the German Pension Insurance (DRV), Verena Bentele, emphasizes the need for higher contributions, particularly from higher earners, to ensure a more equitable social system.
Currently, average earners contribute 19.2 percent of their income towards pension, health, and long-term care insurance. Those with incomes exceeding a certain threshold pay a reduced rate of 13.5 percent. This disparity has raised concerns about structural inequalities within the social security system. There are calls for a more balanced approach that requires wealthier individuals to contribute a fairer share. The proposed changes aim to address these inequalities and strengthen the financial sustainability of the social security framework.
The adjustments to social security contributions will also impact pensioners, especially those receiving reduced earning capacity pensions. Starting in 2025, the income limits for additional earnings for approximately 1.8 million pensioners will be recalibrated. The new supplementary income limits will be based on a reference figure that reflects the average earnings of the insured individual. This is expected to provide a more tailored approach to income thresholds for disability pensioners.
For those with a full reduction in earning capacity who can work a maximum of three hours a day, the new gross annual income limit will be set at €19,661.25, which is about €1,638 per month. Partially disabled individuals, who can work up to six hours daily, will see their limit rise to €39,322.50 annually or approximately €3,276.81 monthly. These changes aim to provide greater flexibility and support for pensioners while ensuring the robustness of the social security system.
The proposed increase in social security contributions is subject to the approval of the Bundesrat. The Finance Ministry has indicated that the passage of tax relief plans is a prerequisite for moving forward with the new contribution rates. The legislative process is complicated by internal disagreements within the ruling coalition, particularly regarding the adjustment of tax rates to inflation.
The adjustments to social security contributions reflect a significant shift in the government's approach to funding social programs. The Ministry of Labor anticipates a wage growth rate of approximately 6.4% for 2023, which will influence the new contribution assessment thresholds. For instance, the contribution assessment ceiling for general pension insurance will rise to €8,050 per month, up from €7,550 in 2024, while the compulsory insurance limit for statutory health insurance will increase to €6,150 per month from €5,775.
High earners will be particularly affected by these changes, as they will see a notable increase in their monthly contributions to social security funds. For example, individuals earning at the top of the income threshold will experience a rise in their monthly pension contributions from €1,403.61 to €1,497.30, while health insurance contributions will increase from €907.43 to €971.70. The total monthly contribution burden for these individuals will rise by €187.40, amounting to an additional €2,248.80 annually.
The VdK social association supports these increases, arguing that they are necessary to prevent a significant revenue shortfall in the pension fund, which could amount to around €2 billion without the proposed changes. This highlights the ongoing debate about the sustainability of social security systems in the face of demographic shifts and economic pressures.
The implications of these changes will be closely monitored by various stakeholders, including financial analysts, policymakers, and the general public. The outcome will not only shape the future of social security contributions in Germany but also set a precedent for how similar systems may be reformed in other countries facing comparable challenges.