freelance pension plans. the good, the bad & the ugly.

German Labor Secretary von der Leyen proposed to include all freelancers in the German pension system. Before, for freelancers paying into the pension pool was voluntary – much unlike employees who always were by default part of the system.

And I’m honestly not sure what to make of the whole thing.

So, quick recap first: von der Leyen proposed a flat fee of some 350-450 Euros per month. The main arguments are: everybody should pay into the pool, and it’s a way to make sure freelancers don’t live in absolute poverty at old age. Criticism was harsh, including a petition against the proposal, signed by some 45K people as I’m writing this. The main arguments against the new default are that joining the pension system should be voluntary, that the amount is too high particularly for job starters and young freelancers, and that a flat fee is inherently unfair.

Now what to make of it? It’s not as easy as it sounds. I was a freelancer for quite a few years, and thought about pension plans etc etc for a long time. Here’s the dilemma: As a freelancer you’re exempt from a lot of both the obligations and the protections employers have. That’s both boon and bane. On one hand, you’re free to decide how to plan ahead, and you save some taxes. On the other hand, you enjoy a lot less protection, say if you have no clients, and you won’t get a state pension unless you setup a private plan.

And as always, that’s the core: Do you believe in the state to protect the weakest, or do you believe in the individual’s choice and responsibility?

  1. I’m not defending von der Leyen’s proposal, I’m trying to form an opinion and share my experiences in case they’re useful for anyone. I do this after having been a freelancer (Freiberufler, to be correct), and being a full-time employee of my own company these days.

  2. A flat fee is probably a bad idea. There’s a certain elegance in flat fees, and frankly the amount isn’t all that high if you compare it to any private pension plan, pension fund, life insurance and all the other flavors. I looked into it, and trust me, if you want to get a somewhat decent pension, it’s not going to be cheaper than that. Yet, a percentage-based fee is probably fairer, or maybe an extemption for the lowest income freelancers, or the first year of your business, or some other more flexible entry level rule. But that can be done, as it is for almost every other relevant field, like part time employment and a sliding tax level for low incomes. (Just don’t be surprised if you end up paying more once you earn a decent salary.)

  3. For freelancers it’s often hard to plan ahead for the next few months. (As it is for small companies, come to think of it.) Just because it’s hard doesn’t mean it shouldn’t be done. Once a new expenditure is established, it’s part of the system and everyone will live with it just fine. And even though I’ve struggled with it myself quite a few times, I do believe that if your business – freelance or not – doesn’t bring in enough cash to pay for a pension than it’s not a business. We’re not talking about full time hobbies, but full time work. (If you freelance on the side it’s a different matter altogether of course, but that’s not what my post is about.) If after a year (or two, or whatever) you can’t pay for it, chances are you never will be. And pension plans work by leverage over time. If you start paying in by 35 or 40 it won’t work. It can’t work. The earlier, the better, and the later, the worse. Much worse, in fact.

  4. The argument that we, as a generation, won’t get our fair share out of the system, is in my eyes highly problematic. I’ve done my fair share of ranting about collapsing pension systems. And I still rant about it. As a generation, it feels like we’re well and truly screwed at least in Germany and in regards to the pension system. The system was built for a very different demographic distribution and we’ll end up paying more and getting less. Yet, I’m not just yet willing to give up the social contract that I also profited off massively, like my free university education for five or six years. I got a lot out of the system, I feel I should put a lot back in. Let’s figure out the details along the way.

That’s it, really, those are my thoughts. I really don’t think that an obligatory system a unified system necessarily has to be a bad idea. I’m also quite sure that the current proposal won’t work out as it seems like a bit of a short-sighted implementation. But as a fellow former freelancer I can tell you from my experience that starting the pension thing is hard, and while it might be easier later, don’t count on it. Whichever system you want to join, you’d better do it today. Otherwise you’ll be debating the same issues again 40 years from now, but not have a chance to change anything.


For some international context: here in Canada is you set yourself up as a business and pay yourself a salary as a freelancer you’re mandated to make both “employee” and “employer” contributions to the state pension plan — called Canada Pension Plan, or CPP.

This isn’t a flat fee, it’s a percentage of salary, and there’s a 1-to-1 match from the employer to the employee, with a maximum employee contribution of $2217 CDN per year, for a total combined contribution of $4435 CDN, which is $369 CDN per month, or roughly 287 EUR per month.

There is another option, which is to have the company pay you dividends rather than a salary, or to be paid in a combination of dividends and salary, and the dividends paid do not require a CPP contribution.

Ah, quite similar to Germany then at least in some ways. As a company owner here you can either be akin to freelance, or you can fully employ yourself. The latter works like you described it for Canada, employer and employee pay 50% of the load each. Nor sure we have a fancy acronym or maximum amount for it, though :)