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Understanding how the pension works is crucial. Essentially, the pension is a financial benefit received when individuals cease working. Its foundational principle is intergenerational solidarity: those who are working today fund the pensions of those who are retired. Contributions from employers and employees constitute about 18.6% of gross wages, which are pooled into the statutory pension insurance—a cornerstone of Germany’s retirement system, supplemented also by private and occupational pensions.
How Is the Pension Calculated?
The formula for calculating future pensions involves several components: