No Job, No Pension? Not for Parents Raising Multiple Kids!
Unemployed individuals' pension benefits: An analysis of benefits for those not employed or contributing - Failure to work and neglecting pension payments can lead to unsatisfactory outcomes.
by Matthias Urbach
Let's get real: If you've never worked, you might think you'll get zilch when it comes to a pension. However, there's an exception for parents who've raised more than one kid. Here's the skinny on that.
Parents, especially moms, can snag a pension claim if they've been dutiful child-raisers. See, Germany's pension insurance (German Pension Insurance or DRV) recognizes child-rearing as legitimate work, granting pension credit points even without a paycheck. More on that below.
Even if you don't have a work history, the state still takes care of folks who can't support themselves. They qualify for citizen's allowance (previously "unemployment benefit II," colloquially known as "Hartz IV"). Citizen's allowance goes to those who can work but haven't hit retirement yet. Other folks can apply for the so-called basic security.
When the Pension Ain't Enough, Basic Security Steps In
Basic security is, essentially, a pension for all those who haven't paid enough into the pension insurance to live comfortably or haven't made other arrangements for their golden years. According to the DRV, if you're living on less than €1062 per month, double-check your entitlement to basic security.
The rules for basic security and citizen's allowance are quite similar, and both benefits need to be claimed at your local social welfare office. Under some conditions, you can even submit a basic security application to the pension insurance, who'll forward it to the social welfare office. If you reap basic security benefits, you'll receive them for twelve months. Needless to say, reapplying annually is necessary.
Maintenance Obligation and Asset Assessment
The government ties social benefits to recipients exhausting their assets first. Parents or children earning more than €100k gross may be obligated to cover maintenance costs. The asset limits for basic security are flexible, excluding cash up to €10,000, reasonable household goods, personal heirlooms, a home or apartment that fits the state's contribution, and more.
For those who've never worked, it's worth noting that sources of income like maintenance payments, rental income, interest, life insurance, or widow's pensions all affect the entitlement to basic security.
The DRV has published a brochure on the nitty-gritty of basic security. You can find it here.
When Parenting is Your Job: Pension Credits for Child-Rearing
The DRV awards pension entitlements to parents based on time spent raising children — even when they've no paid employment during that period. This credit system recognizes the social value of childcare, compensating for lost earnings during child-rearing years.
Parents can claim pension credit points for each child (Entgeltpunkte), which count towards their future pension benefits. Typically, one parent (often the mother) is credited with three points per child, but exceptions exist.
These credit periods can only be claimed by one parent at a time, but parents can split the "waiting period" among themselves. The parent primarily caring for the child, however, has rights to the credits. The credits gained from child-rearing are valued at around one contribution point, equating to a pension claim similar to having earned almost the average wage.
The Verdict: Say Goodbye to Lean Retirement Years
Although nonearned income may seem like the Wild West, don't sweat it. Germany's pension system ensures that families, especially those with multiple children, receive financial support during child-rearing years and beyond. The pension credit system compensates for lost employment income, providing a safety net for families who've potentially missed out on career possibilities to focus on child-rearing.
Other family benefits like child benefit (Kindergeld) and parental allowance (Elterngeld) supplement family income, but they don't influence pension entitlements directly.
This system cements child-rearing as an economically valuable within Germany’s social security framework, safeguarding the pension rights of non-working parents and families with multiple children.
Community policy should consider incorporating vocational training programs for individuals who are currently not working, as this could potentially lead to increased personal-finance and wealth-management skills, making them self-sufficient and contributing to the overall wealth of the community.
For parents who are raising multiple children and have not worked previously, investing in vocational training, such as wealth-management or finance courses, could provide them opportunities for future employment and better financial management, even when their pension may not be enough.
