Pension Benefits Clarified: The Amount of Your Pension Not Necessarily Reflecting Your Pension Package - Pension scheme: understanding why the magnitude of your pension isn't contingent on your earned pension amount
In Germany, the pension level plays a crucial role in determining the value of a single pension point, which is a fundamental factor in calculating individual pension payments.
The monthly public pension in Germany is calculated using the following formula:
- Pension points reflect a person's contributions relative to the average income in Germany. One pension point equals the pension accrued by earning the average income within a year.
- The pension level (current pension value) corresponds to the monetary value of one pension point. It is adjusted annually based on wage developments and other factors.
- The access factor depends on the retirement age relative to the standard age (usually 67), reducing the pension for early retirement and increasing it for postponed retirement.
- The pension type factor applies adjustments for different pension schemes (e.g., disability or survivor pensions).
The pension level is derived from the development of gross wages and salaries across Germany, adjusting the value of pension points to keep pace with average income trends and thus maintain the pension's purchasing power. For example, a pension increase of 3.74% was implemented for 2025 based on such developments.
By 2031, the pension level is expected to reach 48 percent. It is legally impossible for pensions to fall, and the pension level will remain at 48 percent until 2031 due to the cabinet decision. This means that pensions are increasing less strongly than incomes, not that pensions are falling.
The pension level is a calculated value that describes a person's pension if they have paid contributions for 45 years and received the average German income throughout that time. The standard pension is compared with the current average income in Germany to calculate the pension level, providing an overview of pension development in relation to income development.
The Bundestag is expected to pass the draft regarding the pension level by the end of the year. This system ensures that pensions reflect lifetime earnings relative to average income and adapt over time according to the economic situation, creating a transparent relationship between lifetime earnings, pension points, and individual pension benefits.
The Bundestag's upcoming draft aims to maintain the pension level at 48 percent for the next six years, enabling a stable economic relation between lifetime earnings, pension points, and personal pension benefits within the community institution of Germany. As the pension level is a calculated value adjusting each year to mirror current business trends and average income, institutions of residence and workplaces play a crucial role in influencing its evolution.
