Pension Issues for Mobile Researchers in Germany

Legal disclaimer: This is my personal analysis and opinion. I am not a pension adviser and this post solely aims at stimulating discussion of this issue within the German Chapter and the wider MCAA. I prepared this information so that we have a defined position on such issues for discussion with various stakeholders - NCP, Euraxess, host institutions and so on.

Pension issues are particularly complex for mobile researchers. It is not easy to deal with difficult contractual information about pensions in your native language. To deal with complex contracts in a foreign language is much more difficult. The international nature of our members' careers is not yet dealt with flexibly by German pension funds/tax system. Nevertheless many of our alumni members have been in foreign countries for many years - I have been in Germany and Switzerland since my early twenties - for almost 18 years of my life. For long-term mobile researchers, there is no choice other than to engage with this issue as best we can.

Employees in Germany pay 18.7% of their salary into the 1st pillar pension - 9.35% employee contribution and 9.35% employer contribution. There is a 5-year time limit to qualify as a future pensioner in the German pension system. Time worked in other EU countries contributes to the 5 year limit. Many of our members from outside of the EU work for less than 60 months in Europe: they can reclaim the employee contribution to pension but lose the employer contribution. In effect, half of the pension paid from the fellowship disappears. The commission explicitly requires Marie Curie Fellows to pay into the national pension system of the host country. Although I can see the logic of the commission's position with regard to Fellows from Europe, this is often a very ineffective form of pension investment for non-European fellows. In comparison, Humboldt Fellows receive a stipend and don’t pay tax or pension contributions (they are supported to get a relatively tiny voluntary pension if they want).

Generally current Marie Curie Fellows don’t have a 2nd pillar (occupational) pension. No current fellow has ever asked me why they don’t have one. The current template for contracts in Germany says that there is no employer support for such pensions. As an alumni member I now have one from VBL (a public service insurance company) through my employer. The European initiative for 2nd pillar pensions for mobile researchers, RESAVER, cannot work in Germany because German law would need to change first. In Switzerland, the 2nd pillar pension is portable between different employers within Switzerland. In Germany, they freeze the 2nd pillar pension until retirement on moving to a new employer. Basically it means that mobile employees end up with many small pensions from many different sources and countries. There may be minimum time levels (generally 5 years) that qualify the future pensioner for the pension at all. This is based on systems that were developed in the days when many people stayed with the same employer for their whole career. Now we have flexible labour markets without the corresponding pension systems being flexible nationally nevermind internationally.

The 3rd pillar is a personal private pension. The most accessible 3rd pillar pension in Germany is the Riester Rente. Riester Rente makes particular sense if you have a lot of kids. You pay up to 4% of your earnings per year up to a maximum 2100€. The government pays 154€ of this for adults and 300€ for each child. For most childless employees the tax refund gained from declaring the payments as tax free in the tax declaration is much higher than the government payment of 154€. It is necessary to be very careful choosing a Riester insurance plan by paying attention to how they apply charges. Typically the pension companies cover 100% of their own costs for the whole lifetime of the pension in the first five years – the pension funds prioritize their own immediate profits at the expense of the customer. This is of course expensive for the average customers but is particularly expensive for potentially internationally mobile customers. It is also possible to find Riester funds with a flat cost (typically 5%) per payment - this is more suitable for customers who may leave Germany. The pension is frozen on leaving Germany and taxed during retirement.

Taxation and Administration of Pensions during Retirement: Before 2005 German pensions were taxed in the country of residence of the pensioner. The German pensions of pensioners who are resident outside of Germany are taxed in Germany since 2005. Those who receive less than 90% of their income from Germany are not considered tax resident in Germany and are taxed without benefit of tax-free allowances. As the pensions are taxed without any tax-free allowance, German pensions are less attractive for those who will live outside of Germany during retirement than for normal Germans. I guess the taxation of pension during retirement in Germany rather than the country of residence is one reason why German law is incompatible with RESAVER. The administration of small pensions to foreigners in this way must be very bureaucratic and expensive for the concerned German tax offices. Most of all this issue is expensive and bureaucratic for the pensioners themselves. Pensioners have to make a tax declaration in a foreign language at a time when they may be senile. We have to hope that the law changes for the better by the time we reach pension age. The demographic problems and pension cliff in Germany are well known and may also lead to lower payment levels from German 1st pillar pensions in relative terms.