Friday, March 21, 2014

So, you think you have a government pension?

The new German government has good news for old folks: they will very likely allow workers to retire at the full pension at age 63. The catch: 45 years of contributions. But time on unemployment benefits counts.

The other piece of good news: retired moms will get a a small supplementary benefits for time spent raising kids.

Criticism is harsh, though, because of extra financial burden on an already strained system.

We won't dwell on this today because there is so much Bistro Math here, it makes your head spin. Look up Douglas Adams if Bistro Math is unfamiliar.

While countries like Greece have seen a near collapse of society, Germany has been consistently wealthy, even when unemployment soared in the 1990s.  As we already said in previous posts, roughly a decade ago, the country that invented the modern social security system slashed worker pensions. This came on top of creeping changes, such as previously non-existing health insurance requirements and income tax on social security pensions.

As if "simple cuts" were not enough, a whole slew of measures can cut even deeper than that. For instance, if the job center (EDD) thinks you won't find work once you turn 63, they can force you to retire, which means you lose .3 % of your pension per month that you retire prior to the regular retirement age, say prior to age 65.

This loss is permanent.

If you decide to leave for cheaper and warmer shores, you may find that another 18% of your pension is kept by the government: you are living in a low cost country, you don't need as much money, right...

But let's say you took the carrot offered when the government told you your future pension would not be 70+% but more like 55% of your last wages.

The carrot is a bit like an individual retirement account (IRA) stateside, with the government putting in some money as an incentive.
When you retire and do not live in Germany, the government claws back the incentive.

Of course, no system would be complete without a group that escapes unscathed: Germany's "Beamte" status government workers simply continue to get a paycheck until they die, at a comfortably high percentage of their last active salary. The lowest current pension for these privileged workers is around 1600 Euros a month.

The lowest social security pension right now is around 400 Euros. You have to go ask for supplemental benefits to get you to the current official poverty minimum of 750 a month.

But you have that life insurance with a great bonus once you turn 65! Well, there is a reform package coming in the near future, which will chop off some 15% of the bonus because the insurance industry needs help from a friendly government.

But you have affordable health insurance in case all of the above hastens a heart attack!
Well, that friendly government needs money, so they are taking some of the subsidies for families for their general fund. Which means that all forecasts say health insurance premiums are set to go up in 2015.

My grandfather was right after all: The Lord helps those who help themselves, he used to say.

[Update 1-/30/2015] Health insurance premiums stayed flat for the majority of insured but will go at the beginning of 2016 as recently announced by the industry.

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