Retirement in Germany (Freedom Ascendant)

Retirement Plans in Germany began back in the 1880s under Otto Bismarck, and with small interruptions due to world wars, continue to this day. The original retirement plan provided by the federal government, continued in 1949 with the new German Constitution, was a Public Pension program, which a payroll tax up to 9.6% of income, up to 72,000 DM per year. This continued until the late 1980s, when the deficit issues meant that the pension program was unsustainable, leading to the downfall of two Chancellors, and the defeat of the president in the elections the same year.

The Reichstag created a new private pension system with the following features:
 * Employees contribute up to 20% of their income annually into a private retirement pension to be paid out within 1 year of retirement
 * Employer matches will be paid instead to the employees as part of their income.
 * Payments out will be at an amount set by the owner once per annum.
 * Persons born on/after 1-1-1981 will not receive the public pension, and after paying 10 years into the public pension, will not pay into it
 * Persons born on/after 1-1-1974 will not receive the public pension, and after paying 15 years into the public pension, will no longer pay into it.
 * Any person whose annual income exceeded 100,000 DM and has already contributed enough to an existing retirement account such that they have at least 40,000 DM/year for 20 years after regular retirement, they will not receive public pension, and no longer pay in to public pension.
 * Any person who makes over 1,000,000 DM and has already saved for retirement can pay an 'exit tax' of 100,000 DM per million of annual income for average in come over the last 5 years (so, if you made 10,000,000 DM/yr, you'd pay 1,000,000 DM as an exit tax)
 * Any person currently on the public pension system who otherwise can pay for his own retirement will be removed from the public pension system.
 * Payments from the private pension system can be pre-tax or post-tax. Any pre-tax contributions are taxed when drawn out after retirement; post-tax are taxed already, so are not taxed at retirement.
 * The account can be invested into the stock market, gold, silver, oil, or land.

In 1991, the pension payments to the 65-year-olds (7,148,296 people) and older totalled around 128 billion DM, and soon, Germany would face every skyrocketing payment requirements if they didn't make any changes to this program. Thus, the new private pension program was started. Based on this law, over 1.1 million Germans were removed from the pension rolls, saving an estimated 20.2 billion DM or more from the budget.

Using the information available, a person who started saving 10% a year for retirement in 1991 would make much more investing in the private pension system than in the public pension system, even using the safest retirement vehicles available. In 2005, an update to the private pension law was made, allowing up to 15% of your income to be saved to retirement, and starting at 50 years of age, 20% of your income, with extra 'catch-up' payments at any age, consisting of any bonuses or incidental, non-regular-wage-income, that would not count towards the savings percentage cap. Theoretically, this means that a person could make a much better living on the private system, and it would draw down public finances so the federal budget would not be strained; using private pension, most Germans were estimated that their living expenses would never outstrip their ability to pay, and the amended law allowed the remaining pension to be inherited by the person's heirs in their own retirement accounts, or take a portion (up to 10%) out of the sum, which would be taxed if it were untaxed as income.