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Freelancers to pay more in Germany

She doesn't pay anything into Germany's pension system and will get the most out of it, but is forcing freelancers to pay high contributions for almost nothing in return: Ursula von der Leyen, Germany's Federal Minister of Labour and Social Affairs

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Nearly two-thirds of all coworking space members in Germany are self-employed. For them, and all other freelancers in Germany, a special retirement gift is planned by the federal Ministry – though as to who this generous “gift” is for is dubious. Under the slogan “Rewarding Life's Work”, all self-employed workers will be forced to pay minimum monthly contributions to a state or private pension fund. These mandatory contributions will be hundreds of euros per month for a basic social security which they can't live on. For many freelancers, this could signal the end. Here is a petition to change that.

In Germany, from July 1st 2013, many self-employed workers risk enduring significant financial burdens that threaten their professional existence, especially for those who have inconsistent or precarious sources of income. The creative economy is likely to shrink as a result. Here is a petition to the German parliament urging them to review this bill.

Germany's current pension system was formulated in the late 1950s, as a measure to repair the damage done to the system during the hyperinflation of the 1920s and the misappropriation and currency devaluation by the Nazis, and during the Second World War. It introduced an allocation to pensioners following retirement. “People will always have kids,” claimed Chancellor Adenauer, who went on to win the election.

This proverbial “always” ended a short 15 years later. Since 1972, the death rate has exceeded the birth rate, and, not coincidentally, no German Federal Government has managed to introduce a budget without more borrowing. The original solution to the pension problem was not a solution at all.

Today, the pension system is short around 80€ billion, which is not financed by levy. The figure is the sum of the annual new debt, plus the interest and compound interest of existing debts. The pension contribution is by far the highest item of expenditure for the Ministry of Labour and Social Affairs, which, in turn, makes up the largest item in the entire federal budget. In addition, the younger the contributors are, the more they are required to pay, and the less they get in return.

Some occupational groups were exempt from these compulsory insurance contributions, however, including most independent workers, whose numbers have increased by around 26% in the last 20 years. This said, freelancers profit the least from government benefits, especially those in the lower income groups.

Freelancers have a good reason to be exempt from this financial obligation. Many of a freelancer's life risks are self-funded, and, unlike employees, they are not extended the same governmental benefits, despite having partly funded them through taxation. Saving schemes and temporary unemployment benefits are just two examples. The approximate 80 billion annual subsidy is financed by a combination of contributions and tax revenue. The taxes are also paid by freelancers without getting anything for it.

This is the problem the federal government would like to solve, by forcing contributions from this occupational group who are unable to fork out more contributions. Planned is a basic retirement pension, corresponding to around 660€ per month. A service freelancers already paid for since it is part of the current basic social security in Germany. The government will expect additional contributions starting from 250-300€ per month, with a starting age of 22 years. Higher age brackets will be expected to pay more, increasing accordingly. In addition, a further 100€ will be required for disability insurance.

Unlike with contractors, the minimum contributions are not calculated as a percentage of income. One doesn't pay less because they earn less. On the contrary, self-employed individuals with private retirement pension funds: doctors, lawyers, pharmacists or, in short, the right-wing party FDP considers to be its voters, will not be hit with compulsory future contributions. Instead, the poor pay, with self-employed workers on precarious incomes slipping through the federal safety net. For the very poor - those earning under the minimum threshold of 400€ per month - the government will generously exempt from the compulsory contributions; though anything below the minimum threshold is an unlivable salary.

There is no badmouthing a cohesive system in which all demographic groups are treated equally and according to their performance in a sustainable national retirement plan. Unfortunately, the proposed law seeks to do the contrary.

Pension minister von der Leyen receives a national pension, like her colleagues, far beyond the minimum security threshold - without paying a cent into the pension insurance fund. Just like the delegates who make laws. The same applies to the 1.7 million state officials. And there is currently no move to reform neither the Ministry, the Parliament's nor the state's officals pension level.

Individuals who do not work and live exclusively on capital income are also exempt from compulsory insurance. These same people have been rewarded in recent years with significant tax cuts.

The Global Coworking Survey found that independent workers were the members who experienced the highest increase in income since joining a coworking space. Occupation-specific differences disappear, to be sure, but they are on average those members who still very often earn a below-average income compared to employees and the rest of the population. This law will therefore have a very serious impact on them, and on coworking spaces themselves, who might see hoards of members quitting their space. The new plan will not change the sustainability of the pension system. It will still be unfair and unsecure.

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Update:

The petition ended on May 22. More than 80,000 people signed up.

Related articles:

New €350 monthly freelancer tax “will kill innovation in Germany”

50,000 freelancers strike back: petition against retirement tax succeeds

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