Model calculation (basis: 2018) Parental income, child benefit, pension

Over recent decades, families have been left behind, both financially and socially, to an increasing extent. Nowadays, having children puts all parents at a serious financial disadvantage. Children are the main poverty risk factor. At present, more than 2.5 million children in Germany are living with their parents in poverty. This situation must be rectified urgently. Raising and caring for children at home should no longer be considered to be without value and should instead be recognised and remunerated like employed work. Such a step has already been taken in the area of home care: children who look after parents in need of care at home receive a care allowance.

The same step is also required for parents who raise and care for children at home. Possible measures that could be taken with this in mind include the payment of a parental income and a cost-covering child benefit, as well as ensuring an adequate pension. Parents would then have freedom to choose whether to look after their child themselves at home for the most part, in particular during the first few years of his/her life, or to place him/her in a third-party childcare setting, which they would pay for out of the parental income they receive.

The consequences of implementing the proposed measures will be as follows:

• the birth rate will rise again;

• it will remain possible to finance welfare systems;

• parents will have more time for themselves and their children;

• no child will grow up in poverty;

• no more abortions will need to be carried out simply because people cannot afford children;

• child-support payments will no longer be necessary;

• families, and above all single parents, will no longer be at risk of poverty;

• women will be able to have children at a younger age, because they are financially secure;

• parents will be able to continue their education, training, studies or working lives after a period spent raising children;

• it will be possible for work to be reconciled more easily with the task of raising children;

• the financial disadvantage that parents experience while raising children and during retirement will no longer apply. 

How a parental income, a cost-covering child benefit and an adequate pension can be introduced and financed is explained below.

These calculations are based on the situation as at 2018. The financial treatment of families by the state underwent a significant change from 1 January 2007, when the parental allowance was introduced. However, as the child-raising allowance was abolished at the same time, all that changed with regard to the financial situation of families was that mothers or fathers on high incomes found themselves better off, while those with little or no earned income were worse off. Overall, the situation became more unfair. The serious disadvantage that families experienced compared to couples with no children remained unchanged.

Annex 1 Example 1

The above observations result in the example calculation presented in Annex 1, which shows that a couple with two children has EUR 1 546 less available per month than a couple with no children, based on the women performing the same amount of work (unpaid work as a stay-at-home mother in the former case and paid employment in the latter case). This can be attributed to the fact that the task of raising and caring for the children (taken on in this example by the mother) is unpaid and the child benefit is insufficient to cover the minimum costs associated with bringing up a child. These financial losses have led to a situation in which fewer and fewer children are being born and many children are having to grow up in poverty.  

Families who raise children at home are not only disadvantaged at the time; this disadvantage also persists in retirement. While they are bringing up their children, for a number of years parents who are fulfilling this role are unable to undertake any, or any full-time, professional work and therefore pay no, or lower, pension fund contributions. As a result, later in life they receive a lower pension than people with no children, who were able to remain employed at all times and also did not suffer a backward step in their career, unlike many stay-at-home parents. The fact that, for pension calculation purposes, it will be possible to take a period of three years into account for raising a child is a step forward. For current pensioners (children born before 1992) only two years are counted, increasing to two and a half years from 2019. According to Germany’s Herzog Commission (which was set up to propose reforms to the social welfare system), at least six years should be counted at the average wage for the period spent raising a child.

Currently, mothers and fathers are having to cope with significant financial disadvantages to bring up children who, when they get older, will mainly find themselves funding the generally higher pensions enjoyed by people who had no children themselves. It is hard to imagine a more unfair scenario. 

The proposals in this model are designed to put stay-at-home parents and working people on an equal financial footing. To achieve this, payment of a parental income and a cost-covering child benefit is being proposed. 

Annex 2 and 2a Parental income

The parental income is based on the document ‘Erziehungsgehalt 2000’ (‘Parental Income 2000’), which was published by Christian Leipert and Michael Opielka via the Deutscher Arbeitskreis für Familienhilfe (German Working Group for Family Support). Under this proposal it would be granted until a child reaches the age of 12, as up to this age support payments are also made for the care work performed.

The time spent on raising a child, on which the parental income is based, is presented in Annex 2a. This has been derived from the Federal Statistical Office of Germany’s publication ‘Zeit für Kinder’ (‘Time for Children’). The times stated cover the tasks involved in bringing up and caring for a child, as well as the domestic activities carried out for the child. The following hours per month have been calculated as the minimum time required: from 1 to 3 years of age: 152.19; from 4 to 6 years of age: 72.07; and from 7 to 12 years of age: 37.29. Periods when the parent is not with the child but remains available ‘on call’ have not been taken into account. 

The basic principle applied when determining these hours is that the parent will remain with the child and not be in work for at least the first year following the birth. When the child is aged 2 and 3 the parent has freedom to choose whether to stay at home with the child or place him/her with a childminder or crèche for a half-day or full day so it is possible to return to work. The aim is for the child to attend a free kindergarten (half-day) from the age of 4, a free pre-school from the age of 6 (half-day) and, as is the case now, primary school from the age of 7 (half-day), with learning materials and school transport generally being provided free of charge. During this period too parents have freedom to choose whether they want to place children into all-day childcare or whether one of them will remain at home for half of the day to look after the children themselves. 

Overall, the proposed arrangement is not intended to reintroduce the old family model, where the mother spends her whole life at home following the birth of one or more children. Instead, the aim is for the mother/father to rejoin the labour market after a period spent looking after young children. 

 The hourly wage (Annex 2a) has been set at EUR 8.84. This figure of EUR 8.84 is based on the minimum wage. The hourly rate has therefore been set at the lowest value, so that the parental income calculated represents a minimum amount that a mother/father should at least receive. If additional public holidays, holidays and periods of sickness are taken into account, the result is a minimum gross hourly wage of EUR 10.13.   

The parental income (Annex 2) is calculated from these figures and amounts to the following per child per month:

from 1 to 3 years of age: EUR 1 542 gross and EUR 1 143 net;

from 4 to 6 years of age: EUR 730 gross and EUR 541 net;

from 7 to 12 years of age: EUR 378 gross and EUR 280 net.

If there are several children, an upper limit applies per carer. This is set at 260 hours x 10.13, or EUR 2 635 gross. 

The parental income should not be paid from a woman’s fifth child onwards, to discourage couples from having large families for financial reasons.

To calculate the current opportunity costs (unpaid work time), the parental allowance should be deducted from the net parental income to be paid. The parental allowance is paid for 14 months and amounts to 66.67 % of the individual’s average net monthly income over the 12 months preceding the birth. In our example the result of the calculation is EUR 18 928, which leaves opportunity costs of EUR 61 898 per child. 

The child benefit (Annex 3)

A child benefit should be paid that corresponds to the costs involved in bringing up a child, to cover the basic costs of living. The values used are those that formed the basis for Germany’s Hartz IV labour and welfare reform calculation, which are very low. This results in the following amounts for the specified age groups:

for children from 1 to 6 years of age: EUR 331;

for children from 7 to 14 years of age: EUR 433; and

for children from 15 to 18 years of age: EUR 499.

Conditions should be attached to the payment of parental income and child benefit. Parents should be able to demonstrate, for example, that they have participated in a seminar on the theme of raising and caring for a child. Following the birth of a child, in the first instance the parents are supported and advised by midwives, and later by family counsellors. 

To calculate how much a child has cost his/her parents on average up to the age of 18, taking 2018 as a basis, you first need to refer to the opportunity costs, which have been calculated in Annex 2 as EUR 61 898. On top of this are the costs of bringing up children, which came to an average of EUR 414 per child per month. Less the child benefit of EUR 194, this results in expenses for parents of EUR 48 233 for a child up to the age of 18. Combined with the opportunity costs, this means that, taking 2018 as a basis, the cost to parents of bringing up a child comes to EUR 110 132 up to the age of 18. In reality the amounts are higher, mainly because the low Hartz IV rates have been used in this calculation. In most cases substantial expenses are also incurred after the age of 18 (education, training, studies) that also have to be covered by the parents.  

Under this model this should no longer be the case. Parents should no longer be obliged to pay for their adult children after they have turned 18. After the age of 18 the state should fund the costs of education, training or studies for an appropriate period as a form of initial training. In the event of further training or studies, individual arrangements will have to be made.  

In the same way, children should no longer be obliged to pay for their own parents, in the event that they find themselves in need. These two measures should ensure that families are placed on an equal financial footing with couples with no children.

Annex 4 Pension equalisation (transitional arrangement)

The introduction of parental income means that all recipients will be paid an appropriate pension in old age. Our aim is to ensure that all mothers or fathers who are currently of pensionable age also receive an adequate pension for the periods they spent raising a child. According to the Herzog Commission, six years should be taken into account for each child. At present, only two years are counted, increasing to two and a half years from 2019. Generally speaking, to ensure the adequacy and fairness of pensions, six years per child should be counted. 

Annex 5 Financing

In the first instance, the expenditure should be determined, consisting of the family benefits being proposed: parental income, child benefit and pension.

In the case of parental income the expenditure per child per month includes the employer’s contribution. Multiplied by the number of children, this results in the amount to be spent. Tax revenues from the parental income are deducted from this, resulting in expenditure of EUR 7.3 billion per month or EUR 87.8 billion per year. The number of children is taken from the population statistics as at 31 December 2018 shown on the right.

The child benefit has also been multiplied by the number of children. The expenditure amounts to EUR 5.6 billion per month or EUR 67.4 billion per year.

For the pension equalisation one pension point has been multiplied by EUR 31.78. This results in expenditure of EUR 3.0 billion per month or EUR 36.4 billion per year.   

The total expenditure therefore amounts to EUR 16.0 billion per month or EUR 191.6 billion per year.

The family support that has been paid up to now is deducted from this. These support payments will be withdrawn as a result of the parental income, child benefit and pension equalisation. The 6/2013 edition of ‘Der Spiegel’ included a list showing that, in 2010, a sum of EUR 125 500 million was allocated from tax revenues to pay for family benefits. Taking inflation from 2010 to 2018 into account, this results in a figure of EUR 139 431 million. The amount to be financed therefore amounts to EUR 4.3 billion per month or EUR 52.1 billion per year.  

The financing should be organised via a family insurance fund, into which all working persons (including parents receiving the parental income) pay contributions on the basis of their gross income. The proposed system is the same as that used in the area of long-term care insurance. In that case too, persons who are looking after a parent in need of care at home receive a wage from the long-term care insurance fund. It is not only care in an old people’s home that is funded. The same should apply in the case of children. Parents would then have genuine freedom to choose whether to look after their young child themselves for the most part or place him/her in a third-party childcare setting.   

In our case, all working persons would pay 5 % of their gross income to a family insurance fund. The funds would then be paid out to children’s legal guardians on the basis of the proposals described. In this way, parents and couples with no children would be placed on an equal financial footing. There would also be a significant reduction in abortions (of which there are officially around 100 000 per year in Germany), as people would no longer feel obliged to have an abortion for financial reasons. 

In 2018 the number of working persons in Germany stood at 44.8 million. All persons who have raised at least one child should be exempt from paying into the family insurance fund for a period of 18 years. Parents who have raised one child together should pay in at half the normal rate. This results in 33.7 million contributors. 

In 2018 the average gross income was EUR 3 156 per month. Multiplied by 33.7 million contributors, this results in a figure of EUR 106.5 billion. On top of this is the parental income of EUR 7.0 billion, resulting in a gross income of EUR 113.5 billion per month from which contributions will be paid into the family insurance fund. The amount to be financed amounts to EUR 4.3 billion per month. This represents 3.8 % of the gross income. The proposal is to set the family insurance fund contribution at 5 %, to cover additional administrative costs, hardship cases and the expected increase in the birth rate.

All payments should be adjusted annually in line with the current situation (dynamisation).   

Annex 6 Example 2

The first part of the example corresponds to example 1 (Annex 1). The second part incorporates the family compensation payments. The proposed figure of 5 % of gross income has been used for the level of the family insurance fund contribution. The result demonstrates that parents and couples with no children can be placed on an equal financial footing without any additional burden on the public finances.

Werner Lahann

Raiffeisenstr. 13

D-23816 Leezen 

Tel. +49 (0)4552/1301

Email: werner.lahann@t-online.de

Modell 18