Copyright (c) 1998 Brooklyn Law School
Brooklyn Law Review
PENSION REFORM AROUND THE WORLD: PENSIONS AND POST-RETIREMENT BENEFITS BY EMPLOYERS IN GERMANY *
* (c) 1998 Lothar Schruff. All Rights Reserved.
64 Brooklyn L. Rev. 795
Lothar Schruff +
I. Pensions and Post-Retirement Benefits
A. The Dominance of the Compulsory Social Insurance System in Germany
In Germany, the pension system is characterized by the reciprocity of the statutory social insurance pension scheme, company-funded plans, and life insurance (three pillars). The legal pension scheme (first pillar) is the largest part of the Social Security system in Germany. In 1996 state pension expenditure for this scheme totalled DM 323 billion. This represents 8 percent of the German gross national product ("GNP") and covers about two-thirds of the amount needed for retirement. 1
The plan grants a benefit in the event of disability, death or old age. It is unfunded. This means that each generation of workers pays for the pensions of the previous generation in the expectation that the next generation will pay for its pensions ("pay-as-you-go"). This is known as the "generations contract" in Germany. The annuity paid to employees is determined by several factors of a present value formula: the remuneration of the employee, the height and length of premium payments, the age at retirement (for example at the age of 60, 62 or 65 years), the type of pension (death or old age) and-as a compensating adjustment-the current wage index (wage level).
Contribution is paid as a fixed percentage applied to all levels of income up to a certain limit. The contribution is equally shared by the employee and the employer up to an earned income of DM 100,800 and DM 84,000 ...
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