Pension or basic income support? Differences, requirements, and benefits explained simply

Financial security in old age is a key issue for many people in Germany. Two important state benefits play a major role here: the statutory pension and basic income support in old age. Although both appear similar at first glance, they differ fundamentally in terms of purpose, eligibility requirements, amount, and financing.

Article short & sweet

• The statutory pension is an insurance benefit based on contributions paid during working life and serves to secure income in old age.

• Basic income support is a needs-based social benefit that is paid when income and assets are insufficient to cover living expenses.

• The pension is calculated based on the length of contribution, income/contributions to the insurance scheme, and pension points earned. Basic income support ensures the minimum subsistence level, is calculated individually, and is a state social benefit, not an insurance benefit.

• Pensions are taxable, while basic security remains tax-free.

• Basic security covers the standard rate, reasonable housing costs, and any additional needs.

• If the pension is insufficient, basic security can be applied for to close financial gaps.

What is the difference between a pension and basic income support?

The statutory pension is an insurance benefit to which you are entitled through contributions paid during your working life. Basic security in old age and in the event of reduced earning capacity is a needs-based social benefit that is paid upon application if your income—e.g., your pension—is not sufficient to cover your living expenses.

Important differences at a glance:

The German social security system: a brief overview

Germany has a multi-tiered social security system. Statutory pension insurance is part of this system, as are tax-financed benefits such as basic income support and social assistance.

The three pillars of retirement provision:

1. Statutory pension insurance (compulsory insurance for employees)

2. Company pension scheme (organized by the employer)

3. Private pension provision (e.g., Riester or Rürup pension)

This combination is intended to ensure that citizens are financially secure in old age.

The statutory pension: entitlement, options, and financing

Statutory pension insurance is financed by contributions from employees and employers. It serves to secure income in old age, in the event of reduced earning capacity, or in the event of death (for surviving dependents).

Types of statutory pensions:

• Standard old-age pension (from age 67)

• Old-age pension for long-term insured persons (possible earlier, e.g., from age 63 with reductions)

• Pension due to reduced earning capacity

• Survivors' pension (widow's, widower's, or orphan's pension)

Funding:

• Contributions from employees and employers

• Pay-as-you-go system: Today's contributions finance today's pensions

• Government subsidies to stabilize the system

Basic income support in old age and in the event of reduced earning capacity: objective and entitlement

Basic income support kicks in when income—like your Social Security pension—isn't enough to cover your living expenses. It's for people who've reached the normal retirement age or who have a permanent disability that keeps them from working.

Requirements:

• Residence in Germany

• Reached retirement age or permanently incapacitated for work

• Income and assets below certain limits

• Benefit community is checked (e.g., spouse)

Tip: If you have a complete but not permanent reduction in earning capacity, you will not receive basic income support (as the reduction in earning capacity is not permanent) or citizens' allowance (as you are not fit for work). In this case, you should still apply for basic income support. However, you will then receive what is known as cost-of-living assistance, which is calculated in a similar way.

What benefits does basic income support cover?

Basic income support for the elderly and people with reduced earning capacity is intended to ensure that people have a decent minimum standard of living if their own income and assets are insufficient. It consists of several components, the amounts of which may vary depending on the individual's circumstances.

Standard requirement

The standard rate covers basic daily living expenses, i.e., food, clothing, hygiene, communication, mobility, and personal needs. Since January 2023, the standard rate for single adults has been €563 per month, and for couples, €506 per person.

Additional requirements

In addition to the standard rate, so-called additional needs may be granted. These are supplements for special circumstances that involve increased financial expenditure. These include, for example:

• People with disabilities receive an additional 17% of the standard rate.

• People with certain chronic illnesses, for example if they require a costly diet.

• Single parents receive between 12% and 60% of the standard rate, depending on the number and age of their children.

These additional needs must be documented in the application with appropriate evidence (e.g., medical certificates or disability ID cards).

Costs of accommodation and heating

Another important component of basic security is the coverage of reasonable costs for accommodation and heating. These include:

• Rent in the case of a rental agreement or interest-bearing mortgage payments for owner-occupied property,

• heating costs (gas, oil, district heating, or electricity, insofar as it is heating electricity),

• and ancillary costs, provided they remain within the limits considered reasonable for the local area.

What exactly is considered reasonable is based on regional guidelines set by municipalities or counties. Costs that exceed these limits may have to be borne by the applicant.

Basic income support vs. pension: requirements and calculation

Eligibility requirements:

Calculation:

The two benefits are calculated according to different principles:

• The amount of the pension is based on the number of contribution points earned, average income, the length of time contributions were made, and the current pension value. Those who have worked for many years and earned a good income generally receive a higher pension than those with lower incomes or interruptions in their working lives.

• Basic income support, on the other hand, is calculated individually to ensure the legally defined minimum subsistence level. It consists of the standard rate (for living expenses), reasonable costs for accommodation and heating, and any additional needs (e.g., for single parents or the chronically ill). Personal income, such as a small pension, is taken into account and deducted from the total benefit.

Tax treatment

The tax treatment differs significantly between statutory pensions and basic income support. While pensions are increasingly subject to tax, basic income support remains tax-free.

Those who receive a statutory pension may have to pay tax on part of this income. Whether and how much tax is payable depends primarily on the year in which the person retired. Since the 2005 pension reform, the taxable portion of pensions has been gradually increased – for new pensioners, it rises every year. For example, those who retired in 2023 must pay tax on 83% of their pension; for those who retire in 2025, the figure is already 85%. Only the remaining portion remains permanently tax-free (known as the pension allowance).

Another decisive factor is whether the total annual income – including pension and any other income – exceeds the basic allowance. In 2025, this will be €11,604 for single persons (or €23,208 for married couples). If this amount is not exceeded, no income tax is payable.

In contrast, basic income support in old age or in the event of reduced earning capacity is completely tax-free. These benefits are considered social welfare benefits that secure a person's livelihood and therefore do not have to be declared to the tax office. Even those who receive basic income support in addition to their pension only have to pay tax on their taxable income (e.g., part of their pension) – basic income support is not included.

Tip: Even if the tax burden on small pensions is often low or non-existent, it is worth seeking individual advice from a tax advisor or income tax assistance association. This will help you avoid unnecessary deductions, make optimal use of allowances, and rule out possible repayments to the tax office.

Applying: What do you need to keep in mind?

Pension application

• Responsible: German Pension Insurance

• Important: Submit early (3 months before retirement)

• Documents: ID card, insurance number, proof of contribution periods, other documents if necessary

Basic income support application

• Responsible: Social welfare office (locally responsible)

• Documents: ID cards, proof of income, bank statements, rental agreement, proof of assets if applicable

Combination of pension and basic income support

If the statutory pension is not sufficient to cover living expenses and housing costs, it is possible to apply for supplementary basic income support in old age or in the event of reduced earning capacity. This support is particularly important for people whose pension is below the so-called standard rate plus reasonable rental costs. A prerequisite for receiving basic income support is that you have no or only minimal usable assets that can be used to finance your own living expenses.

Basic income support helps to close the financial gap and thus ensure an adequate standard of living. It covers the standard rate for general living expenses as well as reasonable costs for accommodation and heating. In addition, additional needs may be taken into account, for example in the case of certain health restrictions or special circumstances.

Example
A pensioner receives a statutory pension of €600 per month and has no other income. He rents his home and his monthly housing costs amount to €350, for example. Since his pension and housing costs are not sufficient to cover his total needs, he can apply for basic income support. With the supplementary benefit, he can then receive a total of between €950 and €1,100 per month, depending on the actual rental costs and individual additional needs.

Conclusion

Pensions and basic income support serve different purposes, but complement each other in the German welfare state. The statutory pension is an insurance benefit based on contributions paid during working life and serves to secure income in old age. Basic income support, on the other hand, is a needs-based social benefit that supports people whose income—for example, from their pension—is not sufficient to cover their living expenses. While pensions take into account the length of individual contribution periods and earnings and may be taxable, basic income support guarantees the legally defined minimum subsistence level and remains tax-free. For many pensioners, basic security is an important supplementary benefit to compensate for financial shortfalls. Applications are submitted separately to different agencies, and it is worth keeping an eye on both benefits to ensure adequate retirement provision.