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Needs-based pension supplement in old age and in the event of reduced earning capacity

July 27, 2011

Older people have tended not to make use of their entitlement under the former Federal Social Assistance Act

In the past, older people have tended not to make use of their entitlement under the former Federal Social Assistance Act (Bundessozialhilfegesetz) to claim assistance towards living expenses because they feared that their children would be legally required to support them. This main cause of shame-induced poverty in old age was done away with on 1 January 2003 with the introduction of the needs-based pension supplement from the age of 65 and in the event of reduced earning capacity between ages 18 and 64. Until 31 December 2004, needs-based pension supplements were governed by separate legislation (Grundsicherungsgesetz - Pension Supplement Act). Since 1 January 2005, the rules on needs-based pension in old age and in the event of reduced earning capacity have been contained almost unchanged in Book XII of the Social Code (SGB XII).

The tax-financed needs-based pension supplement is a form of social assistance, meaning it is neither a 'replacement' nor a 'minimum' pension.

All individuals from age 65 and individuals from age 18 who have suffered complete loss of earning capacity through medical causes are entitled to a needs-based pension supplement if they are in need and their normal place of residence is in Germany. The entitlement is not dependent on receipt of a pension or the existence of a pension entitlement.

The pension supplement is needs based. The claimant's income and assets are taken into account as for assistance towards living expenses and may reduce the amount that can be claimed.

Needs-based pension in old age and in the event of reduced earning capacity may not be claimed by individuals who:

  • Are entitled to assistance under Section 1 of the Asylum Seekers' Benefits Act. This group involves individuals who are foreign citizens and have no secure residence status, such as asylum seekers and foreigners who only enjoy 'tolerated' status.
  • Who wilfully or through gross negligence brought about their own hardship in the past 10 years, either by squandering their income and assets or by making a gift of them without considering the need to provide for their old age. This is intended to prevent misuse of the benefits.
  1. Needs-based pension supplement in old age and in the event of reduced earning capacity will make it far easier for claimants to claim what they are entitled to in order to meet their needs because in contrast to assistance towards living expenses, no recourse is made to children or parents with an annual income under EUR 100,000 if their immediate family members claim needs-based pension supplement. There is a rebuttable presumption that children's and parents' income does not exceed the stated ceiling. If this presumption is disproved, the claimant is not entitled to claim needs-based pension supplement. Instead, they can claim assistance towards living expenses which may then be subject to recourse being made to their children and parents. Also, other than with assistance towards living expenses, the claimant's heirs are not legally required to reimburse the costs of needs-based pension supplement (heirs' liability).
  2. The needs-based pension supplement significantly improves the situation for people with reduced earning capacity and particularly for those who have been severely disabled since birth or early youth. It gives more financial independence to this group of people who have virtually no opportunity to earn their own living. It also allows the family to stay together and greatly enhances the lives of adults with reduced earning capacity who still live with their parents. In the provision of the needs-based pension supplement, and in contrast to assistance towards living expenses, apart from waiving recourse to children and parents to support the claimant financially, members of a joint household are not automatically presumed to support each other commensurate with their earning capacity (Section 36 of SGB XII). Thus, for the first time, adult children with disabilities are afforded financial security independent of their parents' resources. Also, under the new Social Assistance Act contained in SGB XII, there is no lesser-level recourse if a disabled child lives in a residential home instead of with the parents.

Since 1 January 2005, needs-based pension supplement in old age and in the event of reduced earning capacity has equalled the amount of assistance towards living costs provided under Section 3 of SGB XII. This means that the payment system prescribed by SGB XII applies in full to the needs-based pension supplement. The amount stated in SGB XII constitutes a far-reaching consolidation of one-time benefits similar to that involved to a lesser extent with the basic security benefits for job-seekers. This increases the monthly amount paid to EUR 345 in western Germany and EUR 331 in eastern Germany. By means of a discretionary clause, the German states (Länder) are able to adjust the amount of the respective payment to take account of local conditions. To receive these one-time benefits, which previously had to be claimed separately, claimants must save part of their monthly payments. Only three of these benefits described as one-time payments in SGB XII need now be claimed separately because they cannot be consolidated (Section 31 of SGB XII). If a person who is entitled to needs-based pension supplement is unable to finance an undeniable need that cannot be met by means of the monthly payment, the assistance provider must provide a loan which is then paid back by deducting small monthly instalments from future monthly payments (Section 37 of SGB XII).

Of continued importance is the fact that needs-based pension supplement also includes benefits which under the Pension Supplement Act (Grundsicherungsgesetz, or GSiG) have so far only be paid in connection with assistance towards living expenses. This does away with so-called 'mixed' cases, meaning parallel receipt of needs-based pension supplement and assistance towards living expenses by individuals who are entitled to the pension supplement and do not live in residential institutions. Thus, where the conditions are met, the needs-based pension supplement also pays the special needs allowances for things like expensive dietary products.

The entitlement to needs-based pension supplement and the degree of need is dependent on the claimant's income and assets and those of their spouse or partner in a marriage-like relationship if they share a joint household. Small cash amounts and low-value possessions are not taken into account when calculating the amount of needs-based pension supplement to be paid. The assets ceiling for claimants has been raised from EUR 2,301 to EUR 2,600 (SGB XII).

For individuals who live in residential institutions, the needs-based pension supplement in old age and in the event of reduced earning capacity covers the expenses they would incur in a home environment. Where special needs are involved for someone living in a residential home, supplementary benefits towards integration for people with disabilities, assistance towards long-term care or a cash payment are paid from assistance towards living expenses.

By combining needs-based pension supplement in old age and in the event of reduced earning capacity with assistance towards living expenses in a single law, the need for special provisions regarding responsibility for providing the needs-based pension supplement falls away. The social assistance providers are thus responsible for the needs-based pension supplement and for assistance towards living expenses. There are, however, no actual legal requirements concerning the organisation of municipal administrations in connection with the needs-based pension supplement in old age and in the event of reduced earning capacity. This allows them to retain the existing structures in the administration of the pension supplement. In addition, the old-age pension insurance providers are required to provide information on the conditions to be met when claiming needs-based pension supplement in old age and in the event of reduced earning capacity, and to assist claimants with their applications - particularly in respect of forwarding applications to the competent social assistance provider.

The application requirement is retained in connection with the needs-based pension supplement. Receipt of the pension supplement - other than with assistance towards living expenses - is subject to an application being submitted. It is paid for twelve calendar months and the provider may exercise discretion with regard to the start and end of the approval period. In exceptional cases, it is also possible to grant the pension supplement indefinitely, for example when there is likely to be no change in the claimant's available income.

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