In order to promote the taking up of employment by recipients of social assistance, the possibility has been legally established that the social assistance institutions may grant subsidies to an employer or through other appropriate measures may work toward the goal that the welfare recipient find work. By this is meant primarily the incorporation into regular employment. Other appropriate measures can be, for example, short-term or temporary employment relationships, as well as the promotion of job qualification. To create a stronger incentive for the recipient of social assistance to take on a job in the general employment market, it is possible to grant him, for a period of up to 6 months, a degressive monthly subsidy up to the amount of the basic rate, which is not credited against other social assistance benefits. In the case of refusal of a reasonable job, it is necessary as a first step to reduce the standard rate by at least 25%.
The adjustment of the standard rates is linked to the development of net wages for the period from 1 July 1996 to 30 June 1999 through the Act to Reform the National Assistance Act. Starting 1 July 1999, the basic rates shall be adapted according to the annual statistical changes in net income, consumer behaviour and cost of living.
The prerequisites for a substantial increase in salary in workshops for the handicapped have been achieved though various statutory measures. The handicapped employed in workshops receive a status similar to that of the employed. Starting 1 January 1999, a new financing system shall be introduced for social assistance in and from facilities. Until that time, the increase in the cost rates is limited.
Overdue rent payments shall be paid by social assistance in cases where homelessness is otherwise an imminent threat. Moves to another apartment must be agreed upon by the social assistance authority responsible. Under certain circumstances, costs for finding an apartment and security deposits can also be covered.
The supplement for additional needs of 20% of the standard rate for persons over 65 years of age or those incapable for work shall only then be granted when the need for assistance is proven by a recognised walking disability. Nothing changes for those who have up until now received a supplement for additional requirements.
In order to avoid the misuse of social assistance, automated data comparisons can be carried out between the social welfare authority and its other administrative offices, the Federal Employment Agency, and the Accident and Social Security Pension Insurance.
In order to stabilise the contribution rate level and to limit expenditure development in statutory sickness insurance, the contribution relief act, which came into force on 1 January 1997, established measures to relieve statutory sickness insurance by circa DEM 7.5 billion starting in 1997. In order to insure that this relief is reflected in the form of decreases in social contribution rates, the contribution relief act provided for, among other things, a decrease in contribution rates for sickness insurance funds of 0.4 percentage points starting 1 January 1997.
The contribution relief act serves the purpose of temporarily relieving statutory sickness insurance (GKV) in a financially effective way. It does not, however, contain any instruments suitable for slowing down in the mid to long term the dynamics of expenditure development in statutory sickness insurance.
With this background in mind, the first and second GKV reorganisation acts were put into effect on 1 July 1997 as the "third stage of the health reform". Both the GKV reorganisation acts improve the performance capability and organisational capability of statutory sickness insurance and secure its financial basis. The acts expand, along with insurance rights, above all the structuring possibilities for the self-administration of contracts and benefits. In addition, contribution rate increases by the sickness insurance companies are hindered, and the provision of dentures for insured persons is regulated in a fundamentally new way. The reform process that was initiated with the Health Structure Reform Act in the area of in-patient benefits is continued as well.
For insured persons, essentially the following changes have arisen through the contribution relief act and through the first and second GKV reorganisation acts: In addition to increases in deductibles and the decrease in the level of sick pay, the catalogue of standard insurance benefits provided by statutory sickness insurance has been limited in certain areas to those which are medically necessary and socially required. In addition, the settlement of hardship cases for the chronically ill has, for example, been improved.
The law on the reform of statutory security pension insurance (pension reform act of 1999) takes, among other things, the longer period of drawing a pension into account by incorporating a demographic factor into the pension formula. In this way, charges stemming from demographic development are distributed fairly amongst those paying contributions and those drawing pensions.
The formula used to adjust the current pension value is supplemented by one demographic factor that takes the longer pension period as a consequence of the increase in life expectancy into consideration. The life expectancy for 65-year-olds rose by 1.4 years and by 1.7 months annually during the ten-year period spanning from 1983 to 1993. This trend of rising life expectancy will also continue in the future. This has been shown by the circumstances in other countries. In Japan, for example, the current life expectancy of 65-year-old men is two years higher than in Germany.
The demography factor insures that also the present pensioners – and not just those presently paying contributions, as well as future pensioners – will share, in an adequate fashion, in paying for the additional burdens resulting from the rising life expectancy. This factor causes the future increase in pensions to slow down, leading to a gradual decrease in the ratio of disposable pensions to disposable earnings (net pension level). A regulation governing pension levels insures that the so-called benchmark pension figure, i.e. the proportion of the net pension based on 45 years of insurance on average salary to the current net average earnings, does not fall below 64% once the demography factor is introduced. Even so-called minus adjustments (cuts in pensions) will not occur as a consequence of the demography factor. The demography factor will be applied for the first time for adjusting pensions on 1 July 1999.
A decisive factor in determining the demography factor – without differentiating by sex – is the change in the average life expectancy for 65 year-olds since the 1992 pension reform. So that the burdens arising from the increase in life expectancy are spread to those paying contributions and those drawing pensions, only half of the rise in life expectancy will be taken into account in the calculation. The contribution/benefit relation will not be affected by this. The effects of the demography factor on the contribution payers and pensioners have thus been balanced out.
The following example also demonstrates this:
A net pension of DEM 2,000 in 1999 would have increased to DEM 4,544 by 2030 with an annual salary increase of 3% and not including the demography factor; it increases to DEM 4,310 with the demography factor included.
With the pension reform act of 1999, the present system will be relieved by a uniform, but graded, pension system for reduced earning capacity. A gradation is planned to the effect that
On account of the insurance principle that lays down the principle of equality in concrete terms, the standard for determining the remaining work capacity of all insured persons consists uniformly – as opposed to the occupational disability pension up to now – of all activities on the general employment market still to be taken into consideration in line with the work capacity of the insured. In future there will no longer be a distinction according to which the entire general employment market is applicable for most insured persons and, by comparison, only a limited section of the general employment market, being restricted to specific trade descriptions or occupations with a certain minimum income, is applicable for a part of the insured persons.
In the event that pensions for reduced earning capacity coincide with earned income or replacement income, rules have been laid down for restricting their accumulation, yet retaining the incentive for the insured to aim for additional earnings.
Adjusting the reduced earning capacity pension to meet the prematurely claimed old-age pension, which includes payment on account, is inevitable for avoiding any evasive tactics with respect to payments to be made on old-age pensions claimed in advance because of reduced earning capacity. This type of measure is also necessary for protecting the insurance company from receiving numerous pension applications, for the more part without sufficient cause, for reduced capacity for work.
The payment for those taking advantage of a pension for diminished work capacity is a maximum of 10.8%. In this way, those drawing a pension for reduced earning capacity must pay at most the same level of payment that those drawing an old-age pension for the severely handicapped must do.
The added periods will be extended to avoid any unsuitable repercussions of such a ruling on persons who have diminished work capacity already at an early age, as well as on survivors of insured persons having died early. According to governing law, the time when reduced work capacity sets in or death occurs up to 55 years of age is credited in full to the added period, and the time between 55 and 60 is credited to one third. In the future, the time between 55 and 60 will be credited to two thirds to the added period.
Since the pension level for reduced capacity for work will be matched with the level for old-age pension claimed in advance, and accepting the fact that payments are to be made, then also the non-payment period when drawing an old-age pension cannot be sustained for the severely handicapped from 60 years of age. The retirement age for drawing old-age pension will therefore be raised incrementally – thus running parallel to the age increase already set out for claiming old-age pension in the cases of persons insured over many years and of women – up to age 63, beginning in the year 2000. It will remain possible to draw an early old-age pension for persons having attained 60 years and who agree to make payments on account, however.
A regulation on legal protection of vested rights shall apply for persons who have already reached 55 years of age on 10 October 1997 and who are already severely handicapped, occupationally invalid (invalidity for habitual occupation) or general invalid (invalidity for work in general) on this day. These persons are not affected by the increase in the retirement age for old-age pensions for the severely handicapped, to be effected beginning in 2000. Also as from 2000, the severely handicapped may claim old-age pension on presentation of a disability degree of 50.
The regulations on legal protection of vested rights, created in connection with the law promoting a smooth transition into retirement and the law promoting growth and employment, as well as in conjunction with the retirement age increase for drawing an old-age pension by the unemployed, women and those insured for many years, will be extended to all insured having been born in 1942 and who have been compulsory insured for at least 45 years. These insured persons will continue to receive old-age pensions at the retirement age applicable until 1996. However, to avoid ushering in any new possibilities of accumulating early retirement funds at the expense of social security, contribution periods will not be taken account for periods when receiving unemployment benefits and unemployment assistance.
Beginning in the year 2012, the possibility of claiming old-age pension in advance will only exist for those persons insured for 35 years during periods applicable under pension legislation and starting from age 62 at the earliest. Special old-age pensions for women and also the unemployed, and after completion of part-time work in old age, will no longer exist from this point forward.
According to current law, the unemployed and women have the possibility, under the statutory prerequisites, of claiming old-age pension once reaching 60 years of age. Persons insured for many years – i.e. the majority of men – may, on the other hand, only draw old-age pension once reaching 63 years of age at the earliest. In the long run, this is not in conformity with the non-discrimination clause in the Constitution (art.3, para. 2 GG). Under the statutory prerequisites, there should also be the long-term possibility for the severely handicapped, and this namely for men and women alike, of drawing old-age pension from 60 years of age, with the acceptance of having a maximum payment of 10.8%.
Child rearing will be taken more strongly than before into account in pension insurance. This reflects the great significance that child rearing has in carrying on the existence of the generational agreement and upholding generational solidarity. This will occur first by raising the value attributed to child rearing periods step-by-step from 75% of average remuneration to 100% of average remuneration; this applies both to access to pension as well as to pension amount. For each step, the appraisal will be
Second, child rearing periods – as well as of access to pension and pension amount – will be credited ("additive") as from 1 July 1998 in addition to the already existing contribution periods running parallel and up to the respective contribution assessment ceiling.
It is the federal government’s objective to lower employment costs. In the work alliance towards securing employment location, employers’ associations, unions and political groups have unanimously decided and recognised that the level of ancillary wage costs is of decisive importance in rendering competitiveness, and it must therefore be the common objective of all business forces to turn back social security contributions to under 40% again by the year 2000. A package of effective measures aimed at relieving social security costs was already created through the laws to implement the policy programme for increased growth and employment. Thus this easing of employment costs contributes significantly to improving the competitiveness of Germany as a location for industry.
On account of the law on financing an additional federal subsidy for social security pension insurance, pension insurance will receive additional federal subsidy as from April 1998 for flat-rate payment of benefits not covered by contributions. This grant amounts to 9.6 billion Deutsche marks for April to December 1998 and 15.6 billion Deutsche marks for 1999. As from 2000, this additional federal subsidy will vary annually, corresponding to the change in the yield accrued by value-added tax. This measure enabled the contributions for statutory pension insurance to be stabilised already in the short term and deflected an imminent contribution rate increase for 1998.
With the Employment Promotion Reform Act (AFRG) of 24 March 1997, the employment promotion law in the Federal Republic of Germany has been fundamentally reformed. A few important changes have already been put into effect on 1 April 1997. The comprehensive reform went into effect on 1 January 1998. At this time, the Employment Promotion Act (AFG) of 1969 was replaced by the Third Book of the Social Code (SGB III). There are important new regulations concerning above all the active services for the promotion of employment, the right to receive unemployment insurance benefits, and the perception of responsibility on the part of the employment offices:
With the Employment Promotion Reform Act (AFRG), proven instruments for the promotion of employment were further developed and new instruments were already introduced in part on 1 April 1997:
Especially the circle of those persons protected by unemployment insurance has been expanded, and thus the protection of part-time employees has been improved. An overview of a few essential changes:
The employment offices receive more organisational freedom in the performance of their responsibilities and in budget allocation.