Pensions (Rente) in Corona Times

Corona and short-term work (Kurzarbeit) have been the dominant themes of the last year –the virus is constantly changing and it seems that it isn’t disappearing anytime soon. We are all wondering what impact Corona is going to have on our future, and an important part of our future is our retirement plan (Altersversorgung).

If you’ve received short-term work benefits (Kurzarbeitergeld), you may be wondering how your lost wages and short-term work will affect your pension contributions (Rentenbeiträge) and your future retirement.

Every year on July 1st, retirement pensions are adjusted based on the development in gross wages subject to pension insurance in the previous year. In 2010, pensions were not increased due to the financial crisis, but since then, pensions have increased every year. Corona caused a strong incline in unemployment and short-term work in 2020 which lead to a decline in gross wages across Germany; therefore, the Federal Ministry of Labour and Social Affairs (BMAS) reported that pensions in the west will not increase in July 2021, and will only slightly increase (.72%) in the east. This slight increase in the east is due to eastern pension being gradually adjusted yearly (until 2025) to meet the amount of western pension.

It is possible that pension contributions will increase a year earlier than planned. Before the Corona pandemic, it was assumed that the contributions would start increasing in 2024 – but now, an increase in 2023 is conceivable. With this being said, the great coalition agreed in its 2019 pension package that contributions would not rise above 20% until 2025. The contribution rate in 2020 was 18.6%.

What Happens to My Pension Contributions while I’m Receiving Short-Term Work Benefits?

You are still insured under statutory pension if your employer registered you for short-term work. There is no change to the wages that you earn from normal work – your social security contribution costs will still be split between you and your employer. 80% of the contributions for your lost income due to short-term work are paid by your employer alone. One of the relief measures as a result of Corona temporarily allows your employer to receive a full reimbursement from the Federal Employment Agency (Agentur für Arbeit) for social security contributions for lost income up to July 2021, after July your employer receives 50% back. Without this temporary regulation, employers would have to take on the 80% contribution themselves without reimbursement. Your employers payments towards your social security contributions are required by law and you don’t have to apply for them separately. Overall, short-term work benefits have very little affect on your future pension – the German Pension Insurance (Deutsche Rentenversicherung) sees it similarly.

By the way: If your company has registered you for short-term work by March 2021, your short-term work benefits will increase from 60% to 70% in the fourth month receiving benefits and to 80% in the seventh month (parents always receive 7% more).

What Happens to My Company Pension (Betriebsrente)?

There is unfortunately no general answer to this question as there are 5 different types of company pension – from direct insurance (Direktversicherung) to pension funds (Pensionskassen) – and short-term work benefits affects each type of financing differently.

Example for direct insurance (when an employer takes out a life insurance policy or pension funds for an employee):

• Employer-funded (your employer alone pays the insurance premiums): Contribution payments are suspended if your hours are reduced to zero during short-term work (Kurzarbeit Null) unless you have made other arrangements with your employer or your employer isn’t paying subsidies for short-term work. If your working hours are only reduced, your employer pays respectively reduced contributions.

• Deferred compensation (Entgeltumwandlung, part of your salary is paid towards a life insurance policy or pension funds): You don’t pay any contributions if your work hours are reduced to zero, but if your hours are only reduced, your contributions from your regular wage are also reduced appropriately. Short-term work benefits are not considered a wage, they are wage replacement benefits (Lohnersatzleistungen) and cannot be used to make payments towards company pension.

Your insurance benefits decrease depending on the duration and extent of short-term work; however, you can continue to pay private contributions. You can obtain information about this from your work committee (Betriebsrat) or HR department (Personalabteilung).

Rehabilitation Measures (Reha-Maßnahmen) during Short-Term Work

Short-term work benefits are not paid during any types of rehabilitation, instead, the German Pension Insurance pays you “transitional allowance (Übergangsgeld).” Transitional allowance, like short-term work benefits, is calculated based on your net salary. It amounts to 68% (75% for parents) of your last net salary (during the assessment period). If you were already receiving short-term work benefits before your rehabilitation, your income amount before losing work will be used to calculate the transitional allowance. If short-term work begins during your rehabilitation, you are temporarily suspended from receiving short-term work benefits while you are receiving transitional allowance.

Further Information and Tips on Pension and Short-Term Work

• Retirees that supplement their pension with a job are not entitled to short-term work benefits.
• Voluntary pension provisions (freiwillige Vorsorge) are recommended regardless of company and statutory pension.
• Pension plans (Altersvorsorge): If you are on short-term work, you can adjust your contributions to products such as the Riester retirement plan.
• Employees with mandatory insurance remain members of the statutory health insurance during short-term work.

Further information and advice is available free of charge from German Pension Insurance (DRV).