Pension adjustment formula

The pension adjustment formula - sometimes incorrectly referred to as the pension formula - is used to calculate the rate at which the current pension value and the current pension value (East) and thus the pensions are increased on July 1st of the respective year. In principle, the pensions then increase based on the gross wages and salaries of the previous year. However, the increase does not strictly follow the gross wages, but is adjusted by various factors:

Adjustment of gross wage development to the development of contributory wages and salaries in the year before last.
Riester factor: this is made up of the pension component, the so-called Riester staircase, and the contribution rate for general pension insurance.
Sustainability factor: takes into account the ratio of pensioners to contributors modified by the factor that currently reduces the impact to a quarter. ${\ displaystyle \ alpha}$
Safeguard clause: This prevents pensions from falling absolutely due to the Riester factor, the sustainability factor or the wage development; if “cuts” are not made, future pension increases will be halved until the reduction is made up for.

The adjustment formula

The pension adjustment formula is listed in Section 68, Book Six of the Social Code ( SGB VI ) or for the period from July 1, 2005 to July 1, 2013 in Section 255e, SGB VI.

The current pension adjustment formula (as of May 2013) looks like this:

{\ displaystyle \ mathrm {aRW} _ {\ text {t}} = \ mathrm {aRW} _ {\ text {t-1}} \ cdot \ overbrace {\ frac {\ mathrm {BE} _ {\ text { t-1}}} {\ mathrm {BE} _ {\ text {t-2}} \ cdot {\ frac {\ frac {\ mathrm {BE} _ {\ text {t-2}}} {\ mathrm {BE} _ {\ text {t-3}}}} {\ frac {\ mathrm {bBE} _ {\ text {t-2}}} {\ mathrm {bBE} _ {\ text {t-3} }}}}}} ^ {\ text {wage component}} \ cdot \ overbrace {\ frac {100- \ mathrm {AVA} _ {\ text {t-1}} - \ mathrm {RVB} _ {\ text { t-1}}} {100- \ mathrm {AVA} _ {\ text {t-2}} - \ mathrm {RVB} _ {\ text {t-2}}}} ^ {\ text {Riester factor}} \ cdot \ overbrace {\ left (\ left (1 - {\ frac {\ mathrm {RQ} _ {\ text {t-1}}} {\ mathrm {RQ} _ {\ text {t-2}}} } \ right) \ cdot \ alpha +1 \ right)} ^ {\ text {sustainability factor}}}

In which:
${\ displaystyle \ mathrm {aRW} _ {\ text {t}}}$	is the current pension value to be calculated
${\ displaystyle \ mathrm {aRW} _ {\ text {t-1}}}$	is the current pension value from the previous year
${\ displaystyle \ mathrm {BE} _ {\ text {tx}}}$	are gross wages and salaries of the previous year (t-1), the year before (t-2) or years before last (t-3) per employee without one-euro jobs according to the national accounts system
${\ displaystyle \ mathrm {bBE} _ {\ text {tx}}}$	are the gross wages and salaries subject to contributions according to the insured person statistics of the Association of German Pension Insurance Institutions excluding civil servants and including the contributions to unemployment benefits of the previous (t-2) or previous (t-3) calendar year
${\ displaystyle \ mathrm {AVA} _ {\ text {tx}}}$	is the pension portion of the past (t-1) or previous (t-2) calendar year; starting with 0.5 in 2002, this increases annually by 0.5 until it reaches 4.0; In 2006, 2007 and 2008 the AVA was constant at 2.0, which is why the AVA only reached 4.0 in 2012.
${\ displaystyle \ mathrm {RVB} _ {\ text {tx}}}$	is the contribution to the pension insurance of the past (t-1) or the previous (t-2) calendar year
${\ displaystyle \ mathrm {RQ} _ {\ text {tx}}}$	is the pensioner quotient of the previous (t-1) or previous (t-2) calendar year; the RQ calculates the ratio of equivalence pensioners to equivalence contributors and is structured as follows:
${\ displaystyle \ alpha}$	Currently corresponds to 0.25. As a result, the pension-reducing effect of the pensioner quotient is only a quarter.
	${\ displaystyle \ mathrm {RQ} _ {\ text {tx}} = {\ frac {\ frac {{\ text {Pension volume}} _ {\ text {tx}}} {{\ text {Standard pension}} _ { \ text {tx}}}} {\ frac {{\ text {Contribution volume}} _ {\ text {tx}}} {{\ text {Contribution on vDE}} _ {\ text {tx}}}}}}$
	In which:
	Pension volume	Total volume of pensions paid
	Standard pension / corner pension	Amount of a deductible old-age pension ( regular old-age pension ) at 45 earnings points
	Contribution volume	Total volume of the contributions of all employees subject to pension insurance, marginal part-time employees and those receiving unemployment benefits
	Contribution to vDE	Contribution to the GRV attributable to the provisional average pay according to Annex 1 SGB VI

So-called "Riester factor"

The "factor for the change in the contribution rate to the pension insurance (RVB) and the old-age provision share (AVA)" was introduced in 2001 with the law to "supplement the law on the reform of statutory pension insurance and the promotion of funded pension assets" ( Old Age Assets Supplementary Act - AVmEG). The factor is often referred to as the "Riester factor" after the then Labor Minister Walter Riester (SPD). The Riester factor is made up of two components:

Retirement provision (AVA): Simulates the “burden” of the employed by increased private retirement provision ( Riester pension ).
Pension insurance contribution (RVB): takes into account the "burden" of the employed by the contributions to the statutory pension insurance.

The proportion of old-age provision increases in stages by 0.5 each year, starting with 0.5 in 2002 to 4.0 in 2013 (suspended in 2007 and 2008: remained constant at 2.0). With these steps, the AVA reduces the pension increases and assumes that the resulting pension gap compared to the previous performance target will be compensated by private old-age provision. The pension burden of the previous year is set in relation to the burden of the previous year. The pension burden is calculated by subtracting the AVA and the ARB of the respective year (as a percentage) from a value of 100.

In March 2008, Federal Labor Minister Olaf Scholz (SPD) announced that the pension component should be suspended for a period of two years. To this end, the German Bundestag has changed Section 255e of Book VI of the Social Code so that the pension share for 2007 and 2008 was kept constant at the 2006 level. The period in which the pension component reduces the pension increase is therefore extended from 2011 to 2013.

For the pension adjustment of the year 2013 the following result arises due to the Riester factor:

{\ displaystyle {\ frac {100 - {\ text {4 (pension contribution 2012)}} - {\ text {19.6 (contribution rate 2012)}}} {100 - {\ text {3.5 (pension contribution 2011)} } - {\ text {19.9 (contribution rate 2011)}}}} = 0 {,} 9974}

.

The otherwise resulting pension adjustment was accordingly reduced by 0.26 percent (arithmetically by ). ${\ displaystyle (1-0 {,} 9974) \ cdot 100 = 0 {,} 26}$

Sustainability factor

The second factor is what is known as the sustainability factor . This was introduced in 2004 with the “Act to Secure the Sustainable Funding of Statutory Pension Insurance” ( RV Sustainability Act ). The core of this factor is the development of the pensioner quotient. This puts the number of equivalence pensioners in relation to the equivalence contributors. The number of equivalent pension recipients basically represents how many standard pensions would cause the current pension expenditure of the pension insurance. The equivalence contributors represent the number of average earners (with average earnings ) who would have to pay contributions in order to generate the contribution income to the GRV. The aim of the factor is essentially to comply with the contribution rate caps of 20 percent by 2020 and 22 percent by 2030 introduced in Section 154 of the Retirement Assets Supplementation Act. An expression of this is in particular the factor that only allows the pensioner quotient to have an effect of 25 percent. As a result, the contribution rate target has become dominant in the GRV. This means that the pension insurance has been converted from a performance-based insurance system (the goal is a certain pension level) to a contribution-based insurance system (the contribution rate determines the amount of the pension). ${\ displaystyle \ alpha}$

Safeguard clause

The safeguard clause ( § 68a SGB VI]; or until 2013 in § 255e SGB VI) was also introduced in 2004 as part of the "Act to secure the sustainable financial basis of the statutory pension insurance" ( RV Sustainability Act ). This excludes a reduction in the current pension value through the combined application of the Riester factor and the sustainability factor. The pension adjustment is therefore reduced to a maximum of zero even with stagnating income development and at the same time increasing contributions to the statutory pension insurance and an increasing share of pension provision for the subsidized pension provision.

The safeguard clause was modified in 2007 (the so-called “catch-up factor”) with the “Act to Adjust the Standard Retirement Age to Demographic Developments and to Strengthen the Funding Basis of Statutory Pension Insurance” (RV Age Limits Adjustment Act). The pension reductions that are not made due to the safeguard clause result in the need for compensation and are offset against pension increases. The compensation requirement is determined separately for the new and old federal states. According to Section 255d SGB VI), the compensation requirement was set at 0.9825 (1.75 percent) on June 30, 2007 (introduction of the “catch-up factor”) and the compensation requirement (East) at 0.9870 (1.30 percent) (corresponds to the pension cuts that have not been made since 2005 due to the original safeguard clause).

With the "Act to amend the fourth book of the Social Security Code, to establish a pension equalization fund and to amend other laws", the protective clause (Section 68a SGB VI) was expanded. A decrease in the pension value is therefore also excluded if the gross wages and salaries that are relevant for the pension development decrease. The pension amounts then remain the same, there is a so-called "zero round". Pension cuts that have not been made in this way are offset against later pension increases using the “catch-up factor”.

The compensation requirement is determined as follows in accordance with Section 68a SGB VI. The new current pension value resulting from the pension adjustment formula is divided by the previous current pension value. The result is rounded to four decimal places. The resulting value is multiplied by the compensation requirement of the previous year (if there is no compensation requirement, this is 1.0000). The result is the new compensation requirement. The equalization requirement is offset against pension increases in the same way. Accordingly, the new current pension value is divided by the previous current pension value and rounded to four decimal places. The resulting adjustment factor is halved. The previous current pension value is multiplied by the result to obtain the new current pension value. Half of the adjustment factor is also multiplied by the compensation requirement. The result is the new compensation requirement. If the compensation requirement is less than half of the adjustment factor, the full adjustment factor is multiplied by the compensation requirement. The result is the new current pension value multiplied by the previous current pension value. The compensation requirement is then 1.0000.

Up to June 30, 2013, the compensation requirement is 0.9929 and the compensation requirement (east) is 1.0000. As of July 1, 2013 (after the 2013 pension adjustment), the compensation requirement was 0.9954 (ie –0.25 percent) and the compensation requirement (East) was 1.0000 (i.e. 0.00 percent).

Individual evidence

↑ Draft of an RV Sustainability Act (PDF; 668 kB), p. 22f, reasons for paragraph 1 and paragraph 4
↑ Law to amend the fourth book of the Social Security Code, to set up a pension compensation fund and to amend other laws (PDF; 324 kB)
^ Draft of the Pension Adjustment Ordinance 2013 (PDF; 333 kB). (No longer available online.) In: Bundesregierung, Berlin, 2013. Formerly in the original ; accessed on July 1, 2018 . ( Page no longer available , search in web archives ) @1@ 2Template: Dead Link / www.dguv.de

Web links

Legal work instructions of the regional carriers of the German pension insurance and the German pension insurance Knappschaft-Bahn-See on § 68 SGB VI , § 68a SGB VI and § 255e SGB VI

The federal government: safeguard clauses in the pension formula

Expert council for the assessment of macroeconomic development, excerpt from annual report 2004/2005, description of the pension adjustment formula No. 313ff. (PDF file; 3.97 MB)

Statement by the Federal Insurance Agency for Salaried Employees on the RV Sustainability Act (PDF file; 188 kB)

Statement by the Bremen Chamber of Employees on the German Pension Fund Supplementation Act (AVmEG) ( Memento from January 17, 2009 in the Internet Archive ) (PDF file; 124 kB)

Brief description of the 2013 pension adjustment by Ingo Schäfer, Bremen Chamber of Employees, accessed on April 11, 2013

Presentation of the pension adjustments since 2003 (PDF; 966 kB) by Dr. Johannes Steffen, portal-sozialpolitik.de, accessed on April 11, 2013

Explanation of the pension adjustment formula by Ingo Schäfer, Bremen Chamber of Employees, accessed on March 19, 2014

[1] Draft of an RV Sustainability Act (PDF; 668 kB), p. 22f, reasons for paragraph 1 and paragraph 4

[2] Law to amend the fourth book of the Social Security Code, to set up a pension compensation fund and to amend other laws (PDF; 324 kB)

[3] Draft of the Pension Adjustment Ordinance 2013 (PDF; 333 kB). (No longer available online.) In: Bundesregierung, Berlin, 2013. Formerly in the original ; accessed on July 1, 2018 . ( Page no longer available , search in web archives ) @1@ 2Template: Dead Link / www.dguv.de