German Social Security System Explained

Many people believe that health insurance in Germany is free. In reality, it's not. 😱 Employees pay about 20% of their gross salary into the German social security system.


Do you believe that (public) Health Insurance In Germany is free? Many people living and Working In Germany believe that. Moreover, many people believe that all other parts of the German social security system are free. Unfortunately, that is not true at all. Employees in Germany pay about 20% of their Gross Salary to the German social security system.

When receiving your Payslip from your employer, you can see that basically, two big deductions make the difference between your gross salary and your net salary: Taxes & social security. These deductions happen automatically because contributions to the German social security system are mandatory for all Employees In Germany.

And that’s the reason why many people believe that the social security system in Germany is one of the most efficient social security systems in the world. Find out in this article what the 5 pillars of social security in Germany are and why you are only paying for 4 of them. And see also what kind of benefits you are getting for your money.

Overview of the German Social Security System

Besides taxes, all Employees in Germany also have to pay social security. Self-employed, freelancers or business owners can choose themselves (under certain circumstances) if they want to contribute to German social security or not. Non-employees only have to have Health Insurance & long-term care insurance. That is mandatory for everyone living in Germany.

As the German government determines that all employees in Germany depend on their ability to work for a living, there is no way for employees to exit the German social security system. The 5 pillars of the German social security system will protect you in case you get Sick, Disabled, lose your job or get old with certain benefits. 

Even though a lot of expats living in Germany think social security in Germany is free. Therefore the truth is: that it is built on Solidarity. Every employee contributes to German social security and whoever is in need of that money will be supported by all others. So you pay for everyone else & everyone else will pay for you. You also pay for the generation before you, and the generation after you will pay for your generation.

The good news is that all parts of social security are split 50/50 with your employer. So for every Euro, you have to contribute, you will pay only 50 cents while your employer will pay the other 50 cents. But what are you paying for exactly?

“Employees in Germany are forced by the government to pay into social security.”

Social Security Pillar 1: Health Insurance (Public or Private)

Health Insurance in Germany will protect you in case you become sick and need treatment from a doctor or a hospital. Additionally, health insurance is there to prevent diseases, promote health, and Restore Health in case you are already ill. Germany’s health insurance is split into two different parts: The public health insurance system and the private health insurance system.

  • Public Health Insurance: Employees earning a Gross Salary of 66.000€ or less (2023 number) are automatically forced by the government into the public health insurance system.
  • Private Health Insurance: Employees earning more than that or self-employed, freelancers, and business owners are free to choose in which health insurance system they want to be insured.

Please note: You only need one Health Insurance. Either public health insurance OR private health insurance.

In the Public Health Insurance System, you have to pay 14,6% of your gross salary in contributions (maximum gross salary in 2023: 59.850€). On top of that 14,6% every public health insurance is charging an additional contribution that ranges from 0,6% – 2,7% depending on the efficiency of the public health insurance.

Switching from inefficient public health insurance to an efficient public health insurance can easily save you thousands of euros every year for basically the same coverage (especially if you receive cashback). Coverage of public health insurance is determined by the German government in our Social Code, so it is basically 95% the same for all public health insurances.

All of these numbers & percentages do not matter if you are a member of the Private Health Insurance System. The premium for your private health insurance is not bound to your Salary. You pay according to your age (the younger the cheaper), your health status (the healthier the better), and your coverage (e.g. dental coverage) (higher benefits = higher Insurance premium).

Social Security Pillar 2: German Public Pension (Deutsche Rentenversicherung)

Similar to Public Health Insurance, the German Public Pension has a maximum contribution (18,6% of 85.200€ gross salary in 2022). Salary above that threshold is free of public Pension deduction and contributions are paid from your Payslip 50/50 with your employer (German Pension System Explained).

That 18,6% of your Gross Salary will reward you with a maximum of up to two pension points per year. With pension points, the German public pension (Deutsche Rentenversicherung) will calculate your monthly pension in retirement. In 2022 each pension point will pay you about 36€ in monthly pension from the moment you retire for the rest of your life.

According to a statistic from Deutsche Rentenversicherung itself the average monthly pension payment in 2018 was 1.360€ for people that have been paying into the German Public Pension for at least 35 years. The average monthly pension in 2018 was 1.520€ for men and 1.106€ for women, both pensions before deductions (like gross salary).

All payouts from the German public pension are subject to Health Insurance (public or private), long-term care insurance, and income tax. The extremely low pensions from Deutsche Rentenversicherung are the reason why many people in Germany get Private Pensions (with tax Benefits & government Bonuses) or other kinds of investments like ETFs or Rental Properties.

Which pension in Germany is best for you? Let's find out together.

Social Security Pillar 3: Unemployment Insurance

German unemployment insurance might pay you unemployment benefits (like Arbeitslosengeld or Hartz 4) in case you lose your job. The exact payment you will receive depends on your previous Salary and how long you paid into the German social security system. If you resign from your job on your own, German unemployment insurance will not pay you anything.

Contributions to the German unemployment insurance are deducted straight from your Payslip as well. Employees pay 2,4% of their gross salary – split 50/50 with their employer again.

Social Security Pillar 4: Care Insurance

German long-term care insurance is part of Health Insurance and that’s why you are in the public long-term care insurance if you are a member of the public health insurance system. And if you are in the private health insurance you are in the private long-term care insurance as well. Both long-term care Insurances will pay a certain benefit if you need assistance for daily living.

Contributions to the public long-term care insurance are 3,05% of your Gross Salary for employees with children and 3,3% for employees without children. That is how the government incentivizes people to get more children in order to keep the social security pyramid scheme running. Private long-term care insurance charges about half of what public long-term care Insurance is charging.

Social Security Pillar 5: Accident Insurance

The one insurance from the German social security system that covers you that you do not have to pay for (as your employer entirely pays it), is accident insurance. Every company in Germany has to join a Berufsgenossenschaft that will charge a certain percentage of your gross salary as a premium that depends on the sector of your employer.

In insurance terms, an accident (in German Unfall) is defined as a sudden external event that is acting involuntarily on your body and causes an injury. In this context, an accident occurs if you injure yourself because you trip, slip, fall, get hit by something, or are injured by others. Any reason for injury or illness that does not come from outside your body, is not an accident according to German insurance law.

Neither the accident insurance from social security nor any private accident insurance will pay for any injuries or illnesses caused by something from inside your body (Diabetes, joint disease, back pain, depression, etc). If an accident is caused because you were under the influence of drugs, alcohol, or medication, also most accident insurances will not cover even if something external hit your body that resulted in an injury (e.g. serious injury because you drove your car into a tree while drunk).

Difference between private accident insurance & social security accident insurance: The latter insurance will cover if the accident is related to your job only (760.000 times in 2020). That is of course a major issue for unemployed people that have no job (e.g. housewives) or people that would like coverage against accidents in their spare time. That is why we recommend a private accident insurance with a more complete coverage or a disability income insurance that will cover because of internal reasons as well (e.g. depression, diabetes, back pain, etc).

Do you need help in your personal financial planning? We're here to help.

Can You Exit Out of the German Social Security System?

If the German social security system is so inefficient compared to what they are charging you (about 20% of your Gross Salary) is it possible to quit German social security?

Not as long as you are an employee. The German government wants to protect employees by forcing them to pay into all 4 pillars of social security (Health Insurance, Public Pension, unemployment insurance, long-term care insurance). Only freelancers, self-employed, and business owners can exit. They only have to have health insurance and care insurance.

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