Definition and Legal Classification of the Intergenerational Contract
The term ‘intergenerational contract’ does not refer in Germany or comparable countries to a codified contract in the strict sense between private law parties, but rather to a societal and economic understanding that underpins the welfare state and especially statutory pension insurance. It describes the principle that the generation currently in employment finances, through its contributions, the claims of the retired generation, while today’s employees rely on future generations to fund their own retirement benefits.
Therefore, the intergenerational contract should be understood as a socially and sociopolitically shaped construct based on the pay-as-you-go financing method of social insurance systems. Legally, it is based on the totality of relevant social law provisions, particularly the regulations in Book VI of the Social Code (SGB VI).
Historical Development
Origins in Social Insurance Law
The principle of the intergenerational contract emerged in the 20th century within the context of developing modern social insurance systems, particularly with the introduction of statutory pension insurance in Germany in 1891. The shift from funded to pay-as-you-go systems in the mid-20th century gave the intergenerational contract its current form.
Change Due to Demographic Developments
The intergenerational contract is increasingly at the center of legal and political debate, as an aging population challenges the financial balance of pay-as-you-go mechanisms. This development affects not only pension insurance but also long-term care insurance, health insurance, and civil service pensions.
Legal Basis and Statutory Regulation
Statutory Implementation
Although the intergenerational contract is not an individual contract, its legal basis is found in the Social Code. The central norms are §§ 1 and 2 SGB VI, which establish the principles of solidarity and pay-as-you-go financing. Liability to pay contributions as well as entitlement to benefits are outlined in the respective statutory provisions.
Pay-as-you-go Method in SGB VI
According to § 153 SGB VI, statutory pension insurance is conducted on a pay-as-you-go basis. This means that current contributions are used directly to finance ongoing pension payments (the so-called ‘pay-as-you-go’ principle).
Contribution and Benefit Claims
The rights and obligations of insured persons and contributors, as well as the eligibility criteria for pension benefits, are set out in §§ 55 ff. SGB VI. These provisions define the legal relationships and reinforce the principle of the intergenerational contract on a normative level.
Constitutional Foundations
The welfare state principle in Art. 20(1) Basic Law obliges the state to protect against existential life risks. The intergenerational contract is a manifestation of this constitutional mandate and is supported by the provision of social insurance systems.
Structure and Effect in Social Law
Social Security System
The intergenerational contract forms the foundation of all pay-as-you-go social security systems, in particular:
- Statutory Pension Insurance (§§ 1 ff. SGB VI)
- Statutory Long-Term Care Insurance (SGB XI)
- Statutory Health Insurance (SGB V)
- Statutory Accident Insurance (SGB VII)
In all cases, the benefits claimed are primarily financed by the contributors of each active generation.
Legal Status of the Parties Involved
In the context of the intergenerational contract, contributors (employees and employers) and beneficiaries (pensioners, people in need of care, etc.) stand as legal entities opposite each other. The rights and obligations derive solely from the relevant statutory provisions. There is no civil law contract granting an enforceable claim to benefits from contributions, but rather a statutory public law obligation.
State Safeguards and Rights of Intervention
The legislator can adjust the relationship between contribution and benefit obligations as well as the pension level by amending the Social Codes. This serves to ensure the system’s sustainability (see Federal Constitutional Court, judgment of 28.2.1990, 1 BvF 1/86). There is no legal claim to certain benefits based on the amount of contributions paid; the design of the system is subject to the authority of the state.
Legal Challenges and Reform Debates
Demographic Change
The financial stability of the intergenerational contract is coming under increasing pressure in view of demographic change. Falling birth rates and rising life expectancy lead to a shift in the ratio between contributors and beneficiaries.
Reform Approaches and Legal Implications
Reform options under discussion particularly include:
- Changes to the retirement age
- Adjustment of contribution rates or assessment bases
- Subsidies from tax revenues
- Funding by capital reserves as a supplement to the pay-as-you-go method
Such reforms entail amendments to social law provisions and alter the structure of the intergenerational contract within the statutory framework.
European and International Perspectives
Comparable pay-as-you-go systems exist in various countries, each with specific legal structures. European legal influences (e.g., the EU Mobility Directive) are leading to increasing harmonization of individual social law regulations.
Literature and Further Information
The intergenerational contract is regularly the subject of social science and legal analyses. Key decisions of the Federal Constitutional Court and relevant commentaries on the Social Codes provide a solid foundation for deeper examination of the topic.
Sources:
- SGB VI – Statutory Pension Insurance
- Basic Law for the Federal Republic of Germany
- Federal Constitutional Court, judgment of 28.02.1990 – 1 BvF 1/86
Note: The information in this article is for general informational purposes only and does not constitute qualified legal advice. Changes in the legal situation are possible and should always be checked.
Frequently Asked Questions
What are the legal foundations governing the intergenerational contract in Germany?
The term ‘intergenerational contract’ itself is not a legal term directly anchored in law, but is a figurative description of the principle by which statutory pension insurance in Germany operates. The legal basis for the intergenerational contract is Book VI of the Social Code (SGB VI). It regulates the pay-as-you-go method, whereby the currently employed generation finances the ongoing pensions of retirees through mandatory contributions. § 1 SGB VI stipulates, among other things, that the statutory pension insurance provides its benefits mainly through contributions from employees subject to insurance and from employers. In addition, the system is subject to government supervision and is further specified by various regulations and statutes, for instance regarding contribution rates, pension adjustment, and eligibility criteria. The system is supplemented by additional federally funded grants.
Is there an individually enforceable claim arising from the intergenerational contract?
Legally, there is no individually enforceable claim arising from the intergenerational contract itself, as it is not a contractual agreement between individuals. Pension entitlements arise solely from social security legislation, specifically from SGB VI. Insured persons acquire claims to benefits under § 54 SGB I in accordance with statutory provisions (e.g., fulfillment of minimum insurance periods, occurrence of a pensionable event). Thus, the intergenerational contract is merely a social mechanism specified by legal regulations, but it does not constitute a private or contractual legal entitlement.
How is the intergenerational contract affected by employment law?
Employment law affects the intergenerational contract to the extent that it governs employment relationships, which in turn are the basis for mandatory contributions to statutory pension insurance. The obligation to pay pension contributions arises from SGB VI, specifically from § 1 SGB VI in conjunction with the respective employment contract and employment law in general. Employers are required by § 28e SGB IV to remit contributions for their employees and are liable to the social insurance carrier if they fail to pay or pay late. Employment law thus provides the organizational and legal framework to ensure the payment of contributions and thereby implement the intergenerational contract.
What legal role do state subsidies play in the intergenerational contract?
State subsidies are explicitly provided for in SGB VI to support the financing of the pension insurance. According to § 213 ff. SGB VI, the federal government makes annual subsidies from tax revenues to stabilize the contribution rate and ensure the financial capacity of the pension funds. These grants are not to be regarded as voluntary, but are mandatory under the legal framework. They serve as a legal guarantee that the intergenerational contract can be maintained even in cases of demographic imbalance and that the pension insurance remains financially stable.
What adjustment mechanisms does the law prescribe for the pay-as-you-go system?
SGB VI provides for various adjustment mechanisms to adapt the pay-as-you-go method of the intergenerational contract to demographic and economic developments. Pension adjustments are made annually according to § 68 SGB VI, based on the development of wages and salaries and on the so-called sustainability factor, which also includes the ratio of contributors to pension recipients (pensioner quotient). The law also provides for the possibility of adjusting contribution rates and the pension formula to ensure the long-term financial sustainability of statutory pension insurance. In addition, the introduction of supplementary elements (e.g. Riester pension) as government-subsidized private retirement provision has been made legally possible to complement the pay-as-you-go system.
What legal framework exists for intergenerational fairness in the context of the intergenerational contract?
Intergenerational fairness is a normative objective that is supported by various provisions, but it is not established as a clearly defined legal principle. The aim of statutory regulations in pension insurance law is to ensure a balanced distribution of burdens between the generations (§ 138 SGB VI pension adjustment formula, sustainability factor). The Federal Constitutional Court has also indicated in several decisions that the financing of social insurance systems should essentially be structured in a way that is fair to the generations. However, concrete guidelines are mainly found in the specific design of contribution and benefit rules in SGB VI, not in a separate law on intergenerational fairness.
What role do courts play in disputes regarding rules on the intergenerational contract?
In disputes concerning claims and obligations in connection with statutory pension insurance, the legal process is open to the social courts. Decisions about contribution law, pension entitlement, and the amount of benefits are initially made by the pension insurance provider; if the insured person does not agree, they can exhaust legal recourse through an objection procedure and subsequent lawsuit (§ 54 SGG). The courts exclusively review compliance with applicable laws and regulations, but do not assess or alter the fundamental system of the intergenerational contract, as that is the responsibility of the legislator; changes to the system therefore always require a parliamentary legislative initiative.
