Why civil servants do not pay into the pension insurance scheme

Barely in office, Labor and Social Affairs Minister Bärbel Bas has sparked new controversy over pension policy. Civil servants, members of parliament, and the self-employed should also contribute to the pension insurance system, the Social Democrat demanded in an interview with the Funke media group. "We need to improve revenues."

Criticism followed swiftly: the civil servants' union, business representatives, and the coalition partner CDU are up in arms. But what is the aim of the woman, who also announced her candidacy for co-chairmanship of the SPD this week, with this initiative? How is the reform supposed to work? And what would the consequences be?

The most important questions and answers at a glance.

What exactly does Bas want?

That's not entirely clear, because apart from a few sparse interview sentences, little is known about the minister's plan. The coalition agreement between the SPD and the CDU/CSU explicitly does not provide for the inclusion of civil servants and the self-employed in the statutory pension insurance system – but it does provide for the establishment of a commission of experts to develop proposals for pension reform. Bas intends to contribute her ideas to this process. She is not flexible on this point, the minister explained in the interview. "We need more people to be involved in financing the pension insurance system."

What is the legal situation today?

Anyone employed subject to social security contributions must contribute to the pension insurance scheme. This amounts to 18.6 percent of gross wages, shared equally between employers and employees. The contribution is levied up to a monthly salary of currently €8,050. Every euro earned above this assessment limit is exempt from contributions.

For the self-employed, it depends on the following: If they are compulsorily insured, such as sea pilots, midwives, or many tradespeople, they must also pay into the pension fund, although the contributions are calculated differently. Self-employed individuals who are not compulsorily insured can pay contributions on a voluntary basis and thus provide for their retirement.

Theoretically, this option would also be available to civil servants, but in practice, they are better protected through their pension entitlements than retirees. Civil servants do not pay pension contributions, so their deductions from gross wages are lower than those of salaried employees.

Is the pension privilege unfair?

Civil servants have a twofold advantage when it comes to their retirement provision: They pay no contributions, and their pension levels are significantly higher than those of employees with comparable earnings. Civil servants also have a minimum pension, which is not part of the pension system.

The reason for these privileges is the special status of civil servants. The principle of maintenance applies to them. This means that the state provides for their welfare, including their living expenses in old age. In return, civil servants waive certain rights, such as the right to strike.

The question of whether this is unfair depends largely on the observer's point of view. In lower pay grades, for example, in the police or the armed forces, even civil servants don't earn particularly well. In the higher pay grades, on the other hand, there are often particularly qualified employees who could earn significantly more in the private sector. In both cases, pension entitlements can be an incentive to enter civil service.

Why does Bas want to change the system?

The SPD has long advocated for expanding the circle of those subject to social insurance contributions. In the health and care sector, the Social Democrats are pursuing a similar model with a citizen's insurance scheme. The goal is to improve the revenue base of social insurance and thereby mitigate the contribution increases that employees will likely face due to demographic change.

Can civil servants’ pension rights be taken away?

The general consensus is that this isn't possible. Existing civil servants enjoy protection. A system change could only be implemented for new hires. It's possible that civil service would become less attractive to applicants without pension entitlements. In this case, salaries would have to increase.

Would civil servants stabilize the pension system?

Experts are skeptical. The Bas proposal would create a host of new problems without solving existing ones, argues the employer-friendly German Economic Institute (IW Cologne). While more contributions would flow into the system in the short term if civil servants entered the statutory pension system, in the long term expenditures would also rise, and this would be disproportionately high due to the higher life expectancy of civil servants compared to the population. However, it would take some time until the tipping point is reached. According to a calculation by the German Council of Economic Experts, including civil servants in the pension system would not lead to higher contribution rates until the mid-2070s. The reform would therefore buy time. But nothing more.

What would be the short-term consequences of the reform?

The short-term relief for the pension fund would be offset by an equally short-term burden on the public sector in terms of wage costs. According to IW calculations, the state would have to pay approximately €20 billion in pension contributions for its 1.9 million civil servants. With equal funding, this would be €10 billion. However, this would amount to a net wage cut for civil servants, which would be unlikely to be enforced.