The Federal Ministry of Labour has done the math: the so-called contribution assessment limit will rise sharply in 2025, from 90,600 euros to 96,600 euros per year. This value indicates the wage limit up to which employees must pay into the pension fund and unemployment insurance. Top earners who receive more than the contribution assessment limit will therefore have to pay more next year, especially into the pension fund. In 2025, this will be a maximum of 8,983.80 euros, which is 558 euros more than this year. This is clear from the draft bill that the ministry has submitted. has now published.
Why does this happen?
The contribution assessment limit is based on wages. When salaries fell during the Corona crisis, the 2022 limit also fell. After the exceptionally high inflation, wages have also risen sharply recently. This is the reason why the contribution assessment limit will also rise sharply in 2025. The Ministry of Labor assumes that wages will increase by 6.44 percent across the economy as a whole. The income of the pension insurance is based on wages because the payments are also calculated on this basis. Higher salaries for current employees mean higher benefits for today’s pensioners. Economists therefore find the sharp increase in the contribution assessment limit understandable so that the pension fund’s expenses and income match. “This is logical and business as usual“, says Martin Werding, a member of the Council of Economic Experts nominated by the employers. The committee is better known as the “economic experts”. “After the strong surge in inflation, wages are now catching up” – and with them the upper limit for payments to social insurance.
Is this a secret way of filling up the pension fund?
This is what happened in 2002 in the second coalition between the SPD and the Greens. in the coalition agreement decided to increase the contribution assessment limit in order to relieve the pension fund in the short term. This time, the adjustment will be made according to the same formula as in previous years, without any political changes. The Federal Ministry of Labor explains that the federal government has no leeway here, “no normative discretion,” as the draft regulation states. Only the statutory formulas are to be applied.
What about the other social insurances?
The income limit for contributions to health and nursing care funds will also be raised, in parallel with pension contributions, but at a lower level. According to the draft regulation, the threshold for statutory health and nursing care insurance will rise from 62,100 to 66,150 euros per year. This means that higher contributions will also be due here.
How many people does this affect?
Economist Marcel Thum estimates that around 1.4 million people are affected in pension insurance alone. “They will have to pay a good billion euros more in contributions,” says the researcher from the Ifo Institute. Compared to the total income of social insurance, this is not much. Last year, pension insurance recorded income of almost 432 billion euros.
Does the increase have consequences for the labor market and wages?
Thum does not expect any short-term impact on jobs or income. Labor costs will rise, but employers will have to pay half of the increase because social security contributions must be paid equally by employees and companies. However, given the level of income affected, this is not a serious matter. According to Thum, it is more interesting to see who will have to pay for the increase in the long term. From an economic perspective, that is the employees. “Experience has shown that employers can pass the increase on to employees in part. Employees end up paying two-thirds of the contributions themselves,” says Thum. This is because employees do not work less on average because of such an increase, whereas employers have more opportunities to save on workload across the entire workforce.
What is happening in East Germany?
It took more than three decades, but the separation between East and West in the pension formula is history. Since this year, pensions have been rising equally in both parts of the state. And in 2025, the contribution assessment limit will also be standardized. That sounds like good news just before the state elections in Brandenburg, but it has exactly the opposite effect for top earners in the East: They will be particularly tight next year. Up until now, their contribution assessment limit was below the western value, at 89,400 euros. Therefore, their maximum contribution in 2025 will also increase more than in the west, by a maximum of around 670 euros per year.
Is there resistance?
This time, not only are the SPD and the Greens in coalition, as in 2002, but the FDP is also part of the traffic light government. But even the Liberals agree with the sharp increase in the contribution assessment limit. “The procedure has proven itself,” says the FDP parliamentary group’s social policy spokesman, Pascal Kober. “It prevents the contribution assessment limits from becoming a political football.” FDP MP Max Mordhorst, a clear critic of the SPD’s pension policy, also finds this point unassailable: the higher contribution assessment limits follow “an established mechanism,” he says.
He sees problems elsewhere: “The higher contributions reveal a deficit-ridden and unsustainably financed social system: As we get older, we are sick or in need of care for longer.” Because of these foreseeable rising costs, citizens will have to pay a higher percentage of their wages into the social security system. Economists also criticize this. “Increasing contribution rates should be avoided,” says economist Werding. “That is the real problem.” But the contribution assessment limit should not be offset against this. Werding also does not see the weak economy as an argument for postponing the increase – because it affects a clientele that is not particularly suffering at the moment: “Is unemployment rising among the highest earners? I don’t see that happening.”
Is there also automatic relief?
There is no escape from the contribution assessment limit, the formula is clear. Things are not quite so smooth with the so-called bracket creep. This refers to the effect that rising salaries also increase the tax burden – even though prices are also rising. Without compensation for bracket creep, people would not be able to afford as much or even less despite rising wages. The FDP is calling for this compensation to be built directly into the system, as with the pension fund, without annual political debates. “There should also be automatic mechanisms where it is about easing the burden on citizens, and not just when there are burdens,” says the liberal Kober.