Old-age insurance

What it means

Old-age insurance is the branch of social insurance that pays the retirement pension. Together with disability insurance it makes up pension insurance, and both employer and employee pay it from the assessment base.

It is not saving: the contributions paid do not sit in an account but turn into entitlement through insured periods and personal wage points. For anyone who joined the second pillar, part of the contribution goes to a personal account and the first-pillar pension is lower by that much.

Entitlement to a pension does not arise from paying alone. A statutory number of insured years has to be built up and the pension age reached; someone short of the years gets no old-age pension, and the contributions they paid are not refunded. That is how old-age insurance differs both from saving and from the third pillar, where nothing of the kind threatens the amount saved.

How it works in practice

The employer calculates and pays it monthly with the other levies and reports it to the Social Insurance Agency. The pension is later assembled from those statements, so an error in the registration or in the base surfaces only decades later.

The contribution is capped: nothing is paid above the maximum assessment base, and income beyond it no longer raises the pension. A sole trader’s duty arises from the previous year’s income, and the agency itself tells them the new base.

Under a student work agreement and for pensioners working under an agreement, the employer may apply an exemption from pension insurance contributions up to a statutory income limit. The exemption is notified to the Social Insurance Agency and, where one person has several agreements, can be applied to one of them only, which we check at every new hire.

What to watch out for

A sole trader who does not pay is not merely running up a debt: periods with unpaid contributions do not count towards the insured years. The only fix is to settle the arrears, which keep growing with penalty interest in the meantime.

When the employer leaves non-cash income out of the assessment base, private use of a company car being the usual case, the contribution is lower than it should be. In an inspection the Social Insurance Agency assesses the shortfall for the whole period reviewed with penalty interest, and the employer pays it, even though part of the contribution fell on the employee.