Save up to 8,000 EUR per year in retirement: Compulsory Insured in the KVdR

Disadvantages of Voluntary Membership in the KVdR

If you are legally insured, it is highly desirable to be “compulsorily” insured in the KVdR, the health insurance for retirees. The term “mandatory” here is not very intuitive; being “obliged” is positive, while being “voluntary” in the KVdR is negative.

A lesser-known rule states that you can only be admitted as a compulsory member in the KVdR if you meet the following condition:

At least 90 percent of the second half of your entire working life, from your first job until retirement, must have been under statutory (mandatory, voluntary, or family) health insurance. For each child (foster, step, adopted, or biological), you receive a credit of three years.

So if you first started earning money at age 19, then the total duration of your working life is 67 – 19 = 48 years. Half of that is 24 years, and 90 percent of that is 21.6 years. You get an additional 3 years credited for each child. With one child, that would be 21.6 – 3 = 18.6 years.

You would then need to have been legally insured for at least 18.6 years within the last 24 years of your working life, i.e., between ages 43 (67 – 24) and 67. Valid periods include voluntary, mandatory, and family insurance times.

The severe consequence if you do not meet the above condition, the “pre-insurance period,” perhaps because you were privately insured for too long in the second half of your working life, and thus can only enter statutory pension insurance at age 67 on a “voluntary” basis, is as follows:

Compulsorily insured individuals in the KVdR do not have to pay health insurance contributions on income from renting and capital gains. Voluntarily insured individuals, however, do, at the full rate of, for example, 16 percent including additional contributions.

Suppose you are only entitled to a very low statutory pension of 700 EUR but earn income from rentals and capital investments of 5,000 EUR per month during retirement from age 67.

As a “volunteer” in the KVdR, you must subject your total income up to the assessment ceiling to the health insurance rate of 16 percent.

And while the pension insurance covers half of the 700 EUR pension part of your income (upon application for “volunteers”), you must pay the full rate of 16 percent up to the contribution assessment ceiling for the additional 5,000 EUR income.

Example Calculation of Compulsory versus Voluntary Statutory Health Insurance

For the part of total income that represents the statutory pension, the pension insurance (upon request) covers half of the health insurance contribution, as it does for compulsory insured individuals. However, there is a significant difference for additional income from capital gains and rentals. Voluntarily insured individuals must pay capital gains tax and health insurance contributions, while compulsory insured individuals only pay the capital gains tax:

As you can see, the difference is substantial. Compulsory insured individuals do not have to pay health insurance contributions on any additional income from capital gains and rentals, while voluntarily insured individuals do, at the full rate of 16% up to the contribution assessment limit of 5,175 EUR.

In the worst case, i.e., with a very low statutory pension and high incomes from capital gains and rentals, this could mean more than 8,000 EUR per year in additional costs for the voluntarily insured compared to the compulsory insured.

Therefore, you should ensure that you remain voluntarily insured in the statutory health insurance even during times as a “private individual,” i.e., without employment, to meet the pre-insurance period for compulsory KVdR.

This article is not relevant for those who are privately insured and wish to remain so. As a privately insured individual, you pay private health insurance contributions both before and during retirement, regardless of how much and from what sources you earn income.

What to do if the pre-insurance period can no longer be met due to older age?

If you are already in your fifties and therefore cannot meet the pre-insurance period even if you remain legally insured until retirement, the following options remain:

• Father one or more children. You are credited with three years for each child.
• Marry a partner who has the necessary number of children under the age of 25, all of whom are still in education. Stepchildren count as biological children.
• Marrying several partners in succession, where the above applies to reach the required number of children, would be possible.
• The same for same-sex couples as a registered civil partnership.
• Adopt the necessary number of children, also up to 25 years old and still in education.
• Continue to work part-time and retire later so that the pre-insurance period is met. Inquire at the health insurance company what the minimum weekly working hours and minimum income would be. To our knowledge, quite a little is enough, but probably not just 5 hours a week and a few hundred EUR. A low income would probably be less of a problem, then a minimum contribution would likely apply, but you should ask about any possible minimum number of hours.
• Try to push back the start of your working life in your younger years when applying for admission to the KVdR, e.g., starting work at 22 instead of 19 years old. Maybe the earnings at 19 should not count, as no vocational training (counts), but rather a prerequisite for university studies and therefore part of the studies (unclear if counts)? The exact modalities of what counts and what does not are unclear in this detail, according to our assessment. The health insurance decides, not the pension insurance, which only takes note. Moreover, understandably, evidence cannot always be provided for such long-past things, and thus it is probably not necessarily expected.
• Take legal action, as this unequal treatment may not be lawful. Especially since there is a hard limit, and failing to meet the pre-insurance period by one day could result in one person having a 160,000 EUR additional burden compared to another person who was legally insured one day longer during a 20-year retirement period.
• Just before retirement, convert all your stocks and real estate into gold or cash and live off it. Gold is more troublesome to handle, but with cash, you have the value loss due to inflation.
• In certain years of retirement, convert many stocks and real estate into cash or gold to then live off it for several years. Since health insurance contributions only apply up to the contribution assessment limit each year, you would have saved the health insurance contributions for the income in that year that exceeds this limit. Similar to the previous suggestion, you would have the inflation problem with cash.
• If not already available, buy an owner-occupied property before retirement. Otherwise, for the gross income from rentals and capital gains during retirement, you would first have to pay – in addition to income or capital gains tax – about 16% health insurance before you can pay the rent from the remaining amount. Therefore, it is better to prepay the rental payments by investing them in your own property, and later have accordingly less income, fewer health insurance contributions, and no rental payments.