A retiree's pension is considerable if you've never made contributions. - Unpaid expenses accumulate over time, resulting in a substantial financial burden.
In Germany, parents who have dedicated their time to raising multiple children but never worked professionally can still receive a pension through the "child-rearing credit" (Erziehungszeit) system. This system grants pension points for each child raised, compensating for periods when parents, mostly mothers, did not pay into the pension system due to childcare responsibilities.
Each child typically credits three years of pension points, as if the parent had earned the average income during that time. These points are then used in the standard pension formula to calculate the monthly pension:
[ \text{Monthly pension} = \text{Pension points} \times \text{Access factor} \times \text{Current pension value} \times \text{Pension type factor} ]
In addition, Germany has the “mother’s pension” (Mütterrente) scheme, which provides additional pension increases for parents of children born before 1992. Recent reforms increased these benefits by about €20 per child per month and apply to roughly 10 million women.
However, for those who are able to work but have not yet reached retirement age, the Citizen's Allowance (Hartz IV) is available. This benefit is for individuals who have neither paid enough into the pension insurance to live on it, nor have otherwise provided for their old age. The German Pension Insurance has published a brochure on the details of basic security, which is available as a PDF download.
Citizens who cannot support themselves are entitled to Citizen's Allowance, which is paid for twelve months and the application must be submitted every year. Child-rearing periods are valued at about one contribution point, equivalent to the average wage. It's important to note that the pension claim from child-rearing periods does not take into account maintenance payments, rental income, interest, life insurance, or widow's pensions.
Interestingly, parents can claim a pension even if they have never been professionally active due to child-rearing periods. However, the three years per child can only be claimed by one parent at a time, but parents can divide the "waiting period" among themselves. The German Pension Insurance pays a maximum of 451 euros (as of April 2024) for one parent who has not worked, for four children.
Parents or children can be called upon for maintenance if they earn more than 100,000 euros gross, but not all assets have to be used up to receive basic security. Furthermore, even four child-rearing periods (12 years) are not enough to achieve a pension claim that exceeds the basic security.
In summary, the child-rearing credit system in Germany enables non-working parents to receive a statutory pension based on their caregiving efforts, ensuring inclusion in the public pension scheme despite lack of professional employment. Meanwhile, the Citizen's Allowance serves as a safety net for those who are able to work but have not yet reached retirement age and have not provided for their old age. Both systems play crucial roles in supporting families and individuals in Germany.
[1] German Pension Insurance [2] German Pension Insurance [3] German Pension Insurance [4] German Pension Insurance [5] German Pension Insurance
- To enhance their financial stability, parents who have received a pension through the child-rearing credit system might consider seeking vocational training to supplement their income, as wealth-management and personal-finance skills could aid in optimizing their savings and investments.
- The German Pension Insurance, in addition to providing pensions for those who have dedicated their time to raising multiple children, also offers valuable resources and information on wealth-management and personal-finance best practices, which could be beneficial for those seeking to maximize their future financial success.
