Dr. Bastiaan Didden

Pim Mertens

Introduction

International, European, and Dutch lawmakers are currently addressing the theme of a decent provision for old age. This is also the case in Germany, where various measures have been taken in recent years to strengthen old- age provision. The most recent measure that can be mentioned in this context is the legislative proposal adopted by the German parliament in July 2020 that will make the Grundrente possible with effect from 1 January 2021.[1] The Grundrente can be seen as a supplement to the German statutory pension benefit (part of the Rentenversicherung). The amount of the German statutory pension benefit is based on the insured period (contribution years) and the contributions paid by an employee, which partly depend on the amount of the salary.[2] This system may result in employees with a long employment history but a low earned income receiving a low statutory pension benefit.[3] With the Grundrente, which was one of the key points of the coalition agreement of 2018, the German government aims to achieve a stärkere Anerkennung der Lebensleistung, freely translated to mean a better recognition of work performance.[4]

Structure of the dossier: European integration is key

This dossier constitutes an ex ante assessment of the Grundrente. To this end, both its conditions in general and the cross-border aspects have been specifically taken into account. European integration is the central theme in this context, which means that it has been examined to what extent the cross-border impact of the Grundrente was taken into account when the legislative proposal was drafted. On the basis of an initial assessment of the conditions for eligibility for the Grundrente, it was examined what the Grundrente could possibly mean for socio- economic development and cohesion in the border region. In this dossier, the border region is fairly broad and concerns former cross-border workers who live in the Netherlands or Belgium and have worked in Germany.

The Grundrente in a nutshell

The Grundrente and its conditions are implemented in the Sechsten Buch Sozialgesetzbuch (SGB VI) by means of the Grundrentengesetz. This emphasises the fact that the Grundrente is not a separate payment, but a supplement to the Rentenversicherung, as the aforementioned SGB VI also regulates the Rentenversicherung.[5] One of the most important conditions to be able to claim the Grundrente is the requirement of long-term insurance. This means that at least 33 years of Grundrentenzeiten are fulfilled in Germany. In order to qualify for full Zuschlag, 35 years of Grundrentenzeiten must have been fulfilled. In addition to the necessary duration of the insured period, the objective of the Grundrentenzeiten is also linked to both earned and current income. In order to be entitled to the Grundrente, the value of the Entgeltpunkte must be at least 30% and at most 80% of the average gross income.[6] Upon final payment of the Grundrente, it will also be considered whether there is any other income, which may lead to a deduction on the amount of Grundrente received. It goes beyond the scope of this summary to go into more detail about the Grundrente calculation system, although it is worth mentioning that the Grundrente can, depending on the situation, lead to an increase in income of more than 400 euros per month.

European Integration: taking borders into consideration?

The Grundrente is thus aimed at long-term insured persons – especially women – who, as a result of a low average employment income, receive a low statutory pension benefit.[7] A cross-border worker must therefore also meet the conditions briefly outlined above. From the point of view of European law, no specific details can be identified here. This also applies to the question whether the Grundrente can also be received across the border. At a relatively early stage in the legislative process, a study of the Fachbereich Europa of the German parliament investigated whether the Grundrente is exportable. On the basis of the aspects of the Grundrente, the study indicates that because of the Beitragsunabhängigkeit (not being dependent on contributions), the Grundrente, as well as the German statutory pension benefit, falls within the material scope of Regulation (EC) No 883/2004.[8] The Grundrente can therefore be received across the border. However, the final explanatory memorandum to the legislative proposal does not explicitly address this issue.

When receiving the Grundrente, the application of a tax treaty also comes into play. The explanatory memorandum to the legislative proposal pays no attention to treaty application, despite the likelihood that the Grundrente will receive the same treatment as the German statutory pension benefit. For the application of the tax treaty between Germany and the Netherlands, this means that the state of residence has tax jurisdiction on the basis of Article 17(1). As regards the tax treaty between Germany and Belgium, the source state has jurisdiction under Article 19(3).

The number of cross-border workers who will receive the Grundrente is difficult to estimate. Whether and to what extent a cross-border worker will receive Grundrente obviously depends on whether the conditions of the Grundrente are met while the final amount paid in Grundrente also depends on the income of the former cross- border worker. This requires very detailed statistics, which are not yet available. Nevertheless, an initial estimate can be made on the basis of the German government’s estimates in the Grundrentengesetz[9], the Border Data from Statistics Netherlands (CBS)[10], and the Rentenatlas of the Deutsche Rentenversicherung (DRV) for 2019[11].

It is important for the former cross-border worker that their income is also known to the DRV, which acts as the administrator of the Grundrente.[12] The question that can be raised with regard to the administrative burden is whether the former cross-border worker should take action to this end and proactively inform the DRV. An information website of the DRV about Grundrente appears to indicate that the DRV will be the first to take action in this respect.[13]

Does Grundrente contribute to socio-economic development in the border region?

In the German government’s decision of November 2019 initiating the legislative process, it was stated that combating Altersarmut should be an important primary objective of the Grundrente.[14] The legislative proposal adopted in July 2020 no longer explicitly includes this objective and states that the main purpose of the Grundrente is ‘(…) das Vertrauen in die Leistungsfähigkeit der gesetzlichen Rentenversicherung und den Sozialstaatsgedanken bei einer Zielgruppe zu stärken’ (freely translated: ‘… to strengthen confidence in the efficiency of statutory pension insurance and the idea of the welfare state among a target group’).[15] With the shift in emphasis in the objective and the strict conditions of the Grundrente, the first expectation is that the Grundrente will not be able to contribute significantly to the income of the former cross-border worker and thus neither to the socio-economic development in the border area. In order to properly analyse this cross-border impact, an ex post assessment by means of monitoring should take place.