Today, the German social security system is well developed and comprised of five pillars. As it is based on the principle of solidarity and everyone contributing according to their means, both employees and employers are required to make contributions in equal parts.
The five pillars of the German social security system are:
• Pension (Old Age, Disability, and Spouse)
• Health Insurance
• Long-Term Nursing Care Insurance
• Unemployment Insurance
• Worker’s Compensation
Having the strongest economy in the European Union (EU), one would expect that social security benefits in Germany are high and therefore enough to provide financial security to workers. However, the reality is different. Germany is one of the oldest countries in the world, and it is now feeling the pinch of demographic changes due to an extremely low birth rate. The consequence is that, while high earners may be able to cope, social security benefits do not take low and median earners very far.
Employee contributions to the social security system amount to approximately 19.5% of their salary up to the German Social Security Ceiling (€6,700 per month), whereas employer contributions amount to approximately 21% to the same ceiling.
Supplemental Disability Programs
Employees in Germany do not receive short-term disability benefits from the state. These are the responsibility of the employer at 100% salary for the first six weeks of illness, and the health insurance provider at 70% of gross salary up to €4,538, for a further maximum of 72 weeks, provided the disability is occasioned by the same illness.
If, after 72 weeks of illness an employee is still unable to work, they can apply for the social security disability pension—now known as the reduced earning capacity pension.
Employees are required to have contributed to the social security system for five years to be eligible for the reduced earning capacity pension. In certain circumstances, this requirement may be waived, e.g. reduced earning capacity due to an accident at work.
In the case of total reduced earning capacity, e.g., where the employee is unable to perform any gainful employment (inability to work less than three hours a day), calculation of the reduced earning capacity pension amounts to approximately 34% of the last gross pay. Where an employee is able to work more than three but less than six hours a day, the reduced earning capacity pension amounts to approximately 17% of last gross pay. If an employee can still
work at least six hours or more a day, they are not entitled to a disability pension.
Supplemental disability insurance is a valuable benefit for employees and makes employers competitive when hiring and retaining employees in Germany. As it is not easy for employees to purchase private disability plans with good terms and conditions and purchase supplemental plans, especially without exclusions for pre-existing conditions, this is something employees appreciate.
Approximately 45% of employers provide some form of supplemental disability insurance over and above the contributions they are required to make to the social security system.
Supplemental disability benefits are typically not part of a life insurance policy and are normally provided separately. They are commonly provided and paid for by employers to all of their employees in unlimited employment.