Tagsocial security

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

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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.

Study: Are Coworkers Poor?

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Spoiler: not necessarily. They tend to be under-insured, but they don’t seem to mind.

Christoph Fahle and I conducted a short study on social and financial security among the coworkers at Betahaus Berlin. Betahaus is one of the largest coworking spaces worldwide, and certainly one of the coolest, too.

We did the study simply because so many people are interested in coworking (some recent media coverage: “the future of work“, “digital nomads“). Journalists often try to frame coworkers and other Macbook-hugging knowledge workers like some kind of digital peons. Since both Christoph (as co-founder of Betahaus) and I have a slightly different take on coworking – we both love it and chose to pursue this style of working very much voluntarily – we thought we should go on a fact-finding mission.

So we asked the residents of Betahaus about their financial situation (income, insurances etc), threw in a few demographic questions (age, gender etc), stirred for a while and out came this brief report. For good measure we also tacked on some ideas for improvements of the overall situation of freelancers at the end of the document.

The whole report is available here (in German): Betahaus Kurzstudie “Soziale_Absicherung” (PDF)

Here’s a translation of the executive summary:

Betahaus is a central work space for freelancers in Berlin, from so-called Digital Bohemia to laptop knowedge workers. The large majority of Betahaus users is freelancing or just founding a company. (A few full-time employed are the exception that proves the rule.) Beyond that, the residents of Betahaus can hardly be pigeon-holed as the Betahaus workforce is a very diverse, heterogeneous group regarding income (below €1.800 to over €5.000), age (22-47 years) or profession (design, media, mechatronics…).

If you were to depict a typical Betahaus resident based on the average of all data we found, he would be male, 25-35 years old, freelancing and working full-time. He has health insurance, but no pension plan and hardly has any insurance besides that, but feels sufficiently socially and financially secure. From the government he wishes less bureaucracy, more flexible support and less disadvantages compared to full-time employees. But not just the average, but particularly the statistical outliers find a home at Betahaus, from precarious post-grad to well-earning startup founder or regular employee who is looking for an office away from his office.

In the study we paid particular attention to social and financial security. We came to some remarkable and partly alarming results: Just about 40 per cent of respondents have an all-round insurance package, i.e. health insurance, pension plan and at least one more relevant insurance (occupational disablement insurance, additional private pension plan or life insurance). Still, more than half feels sufficiently financially and socially secure.

Asked for their vision of a perfect social security system, the respondents criticized Germany’s social security system and expressed wishes aimed at politicians: Freelancers are structurally disadvantaged compared to regularly employed, and Betahaus residents wish equal treatment. This includes less bureaucracy as well as more flexibility in the social security system: flexible rates of contributions, the option to exit or change membership in the social insurances, unbureaucratic support in bridging temporary crises or phases of client acquisition. The wish for the option to easier switch between regular employment and freelancing was expressed, particularly in regards to pension plans and health insurance. Particularly young freelancing parents have a hard time as the system for financial support for parents is aimed primarily at regular employees.

We, the authors, are part of the demographic we studied here. In addition to the mere interpretation of the data we would like to offer some perspectives and food for thought in the last chapter. These inputs are aimed as much at politicians as they are at the freelancing community:

  1. Equal treatment of freelancers and regular employees
  2. Make the first steps easier
  3. Allow flexible switching between employment and freelancing (and back)
  4. Flexible micro credits
  5. Support young freelancing parents
  6. Support coworking spaces
  7. Collaboration instead of competition

Christoph has more details in German at the Betahaus blog.

The study is licensed under Creative Commons (by-nc-sa), so share as you wish.

Thanks everyone at Betahaus for your contributions!