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Retirement Insurance for Expatriates in Germany |
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 Social Security regimes are not designed for people who move
around from country to country.
Without some means of coordinating social
security coverage, people who work outside their country of origin may
find themselves covered under the social security systems of two
countries simultaneously.
Paying dual social security contributions is
costly for the employee or for the company if it offers tax
equalization for their assignees.
In general you have to pay into the German Social Insurance scheme
while employed in the country, irrespective of your nationality. German
regulations do not acknowledge one’s being subject to a foreign social
security system as a valid ground for exemption from making
contributions to the German system. To address the problem of double
social security coverage, German rules on social security insurance
exempt persons from contribution, who are temporarily transferred to
work in Germany for the same employer for a fixed period of less than
five years (detached workers).
These rules, however, do not apply if the employer has its business
seat in any member state of the EU or other country in relation to
which a bilateral social security agreement, usually called
totalization agreement, is in force.
I. Totalization agreements and EU rules
Germany has entered into bilateral totalization agreements with 22
countries, including the United States of America, Canada, Japan, and
Switzerland. The general concept of totalization agreements is that an
employee who would otherwise be covered by both social security systems
will be covered only by the social security system of the country where
he or she provides services (territoriality rule).
Often totalization agreements do not automatically apply. Employees who
are exempt from German social security must document their exemption by
obtaining a Certificate of Coverage from the country that will continue
to cover them. In addition to providing better social security
coverage, totalization agreements ensure continuity of benefit accrual
for persons who have acquired social security credits under more than
one system.
Within the EU, unified regulations apply. Nationals of EU member states
working in Germany for a foreign employer are obliged to contribute to
the German pension system only. Having contributed to this system, they
are entitled to future retirement benefits in Germany, which means
their pension accounts retain their values after their employment comes
to an end.
The unified EU rules, as well as the totalization agreements, include
an exception from the territoriality rule designed to minimize
disruptions in the coverage of detached workers. The agreements involve
a variety of concepts. With regard to other EU member states the length
of time which provides eligibility for the detached workers’ exemption
is limited to assignments of less than one year. Where assignments of
up to five years are concerned, an exemption may be granted on advance
application if this, according to the independent judgment of the
competent authority, is in the best interests of the employee. The
situation where the United States is concerned is that a detached
worker on assignment from his or her US employer for not more than five
years will be treated as if he or she were living in the United States
throughout that period.
II. Minimum membership periods
Sometimes expatriates fail to qualify for a pension from one or both
countries because they have not worked long enough or recently enough
to meet minimum eligibility requirements. Under a totalization
agreement such workers may qualify for partial benefits based on
combined, or totalized, coverage credits from both countries. Within
the EU, the respective periods from other EU countries are aggregated.
The same applies in relation to the United States if some minimum
requirements are met.
III. Refund of contributions
A refund of a portion of the contributions relating to the pension
account is not possible in the case of EU nationals and retirement
benefit is secured by EU regulations. In relation to non-contracting
countries and even in relation to some countries with bilateral social
insurance agreements (e.g. the United States) a portion of the social
insurance contributions are deposited into your pension account. A
refund of 50% of your pension contributions without any interest can be
obtained. If you spent more than five years working in Germany you will
instead receive a German pension upon reaching retirement age.
Applying for a refund - which may be done at the earliest 24 months
after you have left Germany - is not always the better alternative. If
you are already eligible for a German pension, this may bestow far
greater benefits than the 50% of the earlier contributions without
interest. In applying for a refund, you are not only forfeiting your
right to a German pension, but may also be giving up – if the matter is
governed by a bilateral agreement – your right to aggregate your
accrued German pension coverage periods with your earned foreign
coverage periods in order to compute one’s foreign retirement benefits.
The decision should be made only after careful consideration of the
possibilities in each specific case and after evaluation of the options
available to nationals of your home country.
In addition, you should always consider tax consequences in the event
that you expect to receive retirement benefits from a country not being
your normal country of residence during retirement.All rights reserved.
We do not take the responsibility for the validity, topicality or completeness of the texts or other information.
 Ralf Kuisle
Rechtsanwaltskanzlei Kuisle
Munich
www.kuisle.net
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