Damon Mcknight
Australia and Germany have a bilateral social security agreement to prevent the double payment of superannuation for employees working temporarily in the other country. The two countries' approaches to superannuation differ: Australia has a mandatory employment-related and privately managed scheme that covers almost 95% of employees, while Germany has a public pension system that covers more than 90% of the population. Research suggests that Germany could benefit from implementing Australia's policies on national tax, pension, and superannuation, leading to higher wealth, home ownership, and welfare for German households.
| Characteristics | Values |
|---|---|
| Superannuation | Australia has a system of mandatory superannuation savings coupled with tax concessions. |
| Germany does not have mandatory superannuation. | |
| Australia is the 5th largest holder of pension fund assets in the world. | |
| German households hold less than 5% of their wealth in retirement accounts. | |
| Australia and Germany have a bilateral agreement to prevent double superannuation coverage. | |
| Germany has a social security system that covers pensions. | |
| Public pensions in Germany are paid at a higher replacement rate than in Australia. | |
| Australia has a federal law dictating minimum amounts that employers must contribute to employees' superannuation accounts. | |
| Australians can start to draw money from their superannuation when they turn 60. | |
| Australians have total access to their superannuation balance at 65. |
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What You'll Learn
- Australia and Germany have a bilateral agreement to prevent double superannuation payments
- German agreement is different to most other countries
- German households save more but are less wealthy than Australians
- German pensions are taxed, Australian superannuation can be tax-free after 60
- Superannuation is compulsory for all employed people in Australia
Australia and Germany have a bilateral agreement to prevent double superannuation payments
Double coverage occurs when an employee is sent from one country to work temporarily in another, and both the employer and employee are required to pay superannuation or social security contributions in both countries. The agreement between Australia and Germany ensures that when employees are sent to work temporarily in the other country, compulsory superannuation and social security contributions will only be made into one country's system.
For example, Australian workers seconded to Germany will remain subject to Australia's Superannuation Guarantee, and contributions will not be required into the German social security system. Similarly, seconded German workers in Australia will contribute to and be covered by the German social security system, and will not be subject to Australia's Superannuation Guarantee.
This Supplementary Agreement improves economic links between Australia and Germany, reducing costs for businesses operating in both countries. It is based on the same principles of avoiding double coverage included in many of Australia's other social security agreements with countries such as Korea, Japan, Greece, and Finland.
To be eligible for coverage under the agreement, employees must be working temporarily in the other country. Self-employed people, diplomats, consular officials, and workers on ships or aircraft in international traffic are also covered by the agreement, with some exceptions.
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German agreement is different to most other countries
Germany's pension system is consistently ranked highly among pension systems worldwide. The German pension system combines a pay-as-you-go system, where the working population pays for pensioners' benefits, with supplementary pension plans. The German pension system is different from many other countries' pension systems in several ways. Firstly, it has a three-pillar structure: pension insurance, company pension schemes, and private pension insurance. Secondly, participation in the pension insurance scheme is mandatory for all employees and some self-employed workers. Thirdly, Germany has a statutory retirement age that is gradually increasing and is currently between 65 and 67 years, depending on the year of birth and contribution period.
The first pillar of the German pension system is German pension insurance, which is equivalent to state or public pensions in other countries. This pillar can be considered the "base layer" of the German pension system. The pension insurance scheme operates on a pay-as-you-go basis and is funded through contributions from the working-age population. Participation in this scheme is compulsory for all employees and some self-employed workers. All contributors are guaranteed a pension after paying into the system for five years.
The second pillar of the German pension system is company pension schemes. Under this pillar, either the employer or the employee (or both) contributes to a pension plan over a pre-agreed period to generate retirement savings.
The third and final pillar of the German pension system is private pension insurance. This pillar consists of a mixture of government-backed schemes and insurance and investment products offered by independent providers. Expatriates living in Germany can participate in all three pillars of the pension system. It is possible to pay premiums to and receive benefits from private pension plans even after leaving Germany. If an expatriate qualifies for a pension under the Public Retirement Insurance, they can receive it even if they do not live in Germany.
In addition to its three-pillar structure, the German pension system differs from other countries in its retirement age and contribution requirements. The retirement age in Germany is currently 66 years for people born in 1959 and will gradually increase to 67 by 2031. However, there are exceptions for those who have made pension contributions for a longer period. For example, early retirement at 64 years and four months is possible for those who have contributed for 45 years. Similarly, early retirement at 63 is an option for those who have contributed for at least 35 years, but this comes with a reduction in pension entitlement.
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German households save more but are less wealthy than Australians
Germany and Australia have a bilateral social security agreement that deals with the issue of 'double super coverage'. This occurs when an employee is sent from one country to work temporarily in the other country, and the employer and employee are required to pay superannuation or social security contributions in both countries. This agreement ensures that people working in both countries will not be subjected to double superannuation coverage.
While German households have a higher average disposable income than Australians, they save more but are less wealthy. Germany's aggregate saving rate and current account (CA) balance began to improve steadily in the early 2000s, reaching a peak of around 9% of GDP in 2015. This has been associated with widening top income inequality, with rising corporate profits in an environment of high business wealth concentration accounting for 90% of the rise in the private savings rate. On the other hand, Australia has a lower saving rate, with its CA balance improving steadily but at a slower pace than Germany. As a result, Germany has a higher net worth and is better positioned to benefit from positive external demand shocks, such as China's investment-heavy fiscal stimulus.
Germany's high saving rate is driven by several factors, including rising corporate savings, wage restraint, falling labor shares, and lower dividend payout rates. The benefits of these factors are unevenly distributed, with growing corporate profits accruing mainly to households at the top of the wealth distribution, where business ownership is concentrated. This interaction between pre-existing wealth inequality and rising corporate income has widened overall income inequality in Germany.
In contrast, Australia has a lower saving rate and a slower improvement in its CA balance. Australia's social security system includes superannuation contributions, which are mandatory retirement savings that employers pay into funds for their employees. This system may contribute to a lower saving rate among Australian households, as a portion of their income is automatically directed towards retirement savings. However, it also ensures that a larger portion of the population has retirement funds, which may contribute to overall financial stability.
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German pensions are taxed, Australian superannuation can be tax-free after 60
Australia and Germany have a Social Security Agreement that helps people access pensions from both countries. However, the two countries' pension systems differ significantly.
In Germany, pensions are taxed increasingly based on the retirement year. Contributions to the statutory pension scheme are typically tax-deductible, and the tax-deductibility has a cap based on income thresholds. This means that if a German resident's income exceeds the national tax-free threshold or includes taxable pension benefits, they must pay taxes on their pension income.
On the other hand, in Australia, superannuation withdrawals can be tax-free after age 60 under certain conditions. While employer contributions may be taxed when benefits are received, they are generally not taxed upon contribution. Instead, they are often treated as part of the employee's retirement income.
The differences in pension taxation between Germany and Australia highlight the importance of understanding how various countries treat pension contributions, withdrawals, and benefits for long-term financial planning. For example, in the United States, social security benefits may be partially taxed depending on total income, and some countries, like the UK, allow for 25% of pension pots to be taken tax-free, while the rest is taxed as income.
Additionally, it is worth noting that tax treaties can influence pension taxation. These treaties prevent double taxation and clarify where pension income is taxed. For instance, Germany and the US have a treaty specifying taxation rights on pensions, and the US has treaties that determine the taxability of foreign social security payments for US citizens or residents.
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Superannuation is compulsory for all employed people in Australia
Superannuation, or "super" as it is commonly referred to in Australia, is a compulsory retirement savings scheme for all employed people in the country. It is a system of workplace pensions, where employers are required by federal law to contribute a minimum amount to their employees' superannuation accounts, on top of their standard wages or salaries. The current mandatory minimum "guarantee" contribution is 12% of the employee's base earnings, having increased incrementally from 9% in July 2002 to its present rate in July 2025.
The Superannuation Guarantee was introduced by the Hawke government to encourage self-funded retirement savings and reduce reliance on public pensions. It applies to full-time, part-time, and casual workers aged 18 and over, as well as employees under 18 who work more than 30 hours weekly. Employers must also offer eligible employees a choice of super funds, including industry funds, retail funds, and self-managed superannuation funds.
The Australian Taxation Office (ATO) is the primary enforcement agency for the compulsory super guarantee, and it provides advice and information to employers and employees on their tax and superannuation obligations. The ATO also assists with issues of "double coverage," where employees working temporarily in another country with a social security agreement, like Germany, would otherwise be required to pay superannuation in both countries.
Superannuation contributions are invested over the employee's working life, and the resulting sum, less taxes and fees, is paid out upon retirement. Strict government rules govern access to these funds, with limited exceptions for severe financial hardship, medical treatment, or compassionate grounds.
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Frequently asked questions
Germany does have a public pension system, which covers more than 90% of the population. However, it is different from Australia's superannuation system. In Australia, superannuation funds hold the largest financial assets, worth an estimated 20% of total household wealth. In Germany, less than 5% of household wealth is held in retirement accounts.
Australia has a mandatory employment-related and privately managed scheme that covers almost 95% of employees. On the other hand, Germany has a pay-as-you-go financed system, where contributions (payroll taxes) from workers directly finance pensioners' benefits.
Research shows that German households could achieve significantly higher wealth and home ownership by implementing Australia's superannuation policies. While German households save more at 11% of their disposable income, the average Australian household is wealthier due to the country's tax and pension system.
