Social Security System
The core social security in Germany is financed collectively. The government pays the current costs – for pensioners, the sick or those in need of nursing care, or the unemployed - directly from contributions made by employees and employers. Social security is made up of the following elements:
- Good basic protection
Compulsory for average
- Low priced family protection
- Contribution rate assessed by income
- Better protection
- For highly paid employees or self-employed
- Contribution rate assessed by age at entry and state of health at entry
All employees below a certain gross wage limit of about EUR 4,000 per month are compulsorily insured with one of the public health insurance companies. The contribution rates at around 15.5 % of the gross salary and divided equally between the employee and employer. Above this gross wage ceiling, employees can freely choose between public or private health insurance. Self-employed persons such as directors who are major shareholders at the same time can freely choose between the public or private health insurance systems.
The choice should be made with respect to individual requirements: the public health insurance covers all basic needs and usually includes many more services than others abroad. All non-working family members are included for free. The private health insurance charges extra rates for family members. Usually it includes more services, and the contribution rates are not assessed by salary, but by the age and state of health at entry. It might be the favoured choice for young, highly paid singles, or married, childless couples. Once private health insurance is chosen, the return to the public health insurance is restricted. For some couples with children a combination might be favourable.
Every foreign person needs to show health insurance protection comparable to the public health insurance before a residence permit is granted. The contribution rates range from EUR 30.00 per month for private insurance for language students to amounts assessed by the above mentioned system for employees.
The public pension insurance cover is compulsory for employees. The contribution rate for a state pension is currently 19.5 percent of the gross wage and is divided equally between employee and employer.
The usual age at entry is 67, and the monthly pension claim is measured according to the total sum paid into the pension fund. E.g., a monthly salary of EUR 3,000 for a 35 year period leads to a monthly pension claim of EUR 1,000. The calculation is based on current numbers, but the development of the German population structure and political influences will result in a lower pension claim in the future. If the beneficiary dies, the widow(er) receives 60% of the pension claim as widow’s pension.
Apart from that, there are numerous private pensions available, some of them supported by the government providing tax allowances.
Bilateral Social Insurance Agreements
The Bilateral Social Insurance Agreements between Germany and other states can provide an exemption from the obligation to contribute to the German pension system for foreign expatriates sent to Germany by their foreign employer for some years. In addition to that, the paid contribution can be partly recovered by a sent or non-sent foreigner after having left Germany.
Nursing care insurance and unemployment insurance
The nursing care insurance and the unemployment insurance are other mandatory contributions. The rates are 1.7% and 4.2% of the gross wage shared by the employer and employee.