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Statutory pension insurance

July 20, 2011

Germany has a highly developed social state

Federal Eagle

Germany has a highly developed social state. The social state principle is enshrined in Germany's constitution, the German Basic Law (Article 20 (1) and Article 28 (1)). Social state provision is therefore an obligation for government. The state must ensure that its citizens can meet their needs (social security) and help close the gap between the socially strong and the socially weak (social equity). Social state provision includes provision for old age and risks such as illness, need of nursing care, and unemployment.

Major elements of the social state include the several statutory social insurance systems. Among them, the statutory pension insurance system is the largest social security scheme in Germany. This evolved in numerous reforms from a law introducing invalidity and pension insurance under Bismarck in 1889. In its more than 110 year history, statutory pension insurance has developed from a subsidy towards general living costs into the mainstay of financial security in old age.

Pensions are socially equitable,

because statutory pension insurance provides security on the basis of solidarity between generations. At the end of a person's working life, their old-age pension takes the place of pay and so plays a vital part in providing financial security in old age. Unlike under private pension insurance, gender, age and health have no effect on the size of statutory pension contributions. Periods in life that are particularly important to society, as when raising children, count towards the amount of their old-age pension. Statutory pension insurance provides social security not just in old age, however, but also during working life, for example with rehabilitation benefits and reduced earning capacity pensions. Surviving dependants are also supported by a surviving dependants' pension on the death of their spouse or of their partner in a registered civil partnership or an orphan's pension on the death of a parent.

Pensions are individual,

because their amount is based on the income on which contributions have been paid. Statutory pensions therefore reflect what people have put in during their working life.

Pensions are sustainable,

because the system is dependable and will continue to function in the long term. In the course of its history, the statutory pension insurance system has already shown that it can adapt to economic, demographic and social change. Pensions provide security for the individual, because pension entitlements enjoy the constitutional protection given to private property. The social state principle in the statutory pension system is an integral part of modern Germany and is supported by all main social groups.