Saving for the Future – Private Pension Plans in Germany

For an expatriate living in another country, possibilities for retirement plans may seem difficult or confusing. The best way to solve this is to hire a financial adviser to offer the best options and advice for each individual financial situation. There are many options available to those looking to save money for the future —one of those options is a private pension plan.

What is a pension plan?

A typical pension plan in the U.S. is a contribution of funds set up by an employer to invest on the employee’s behalf as part of a retirement plan. This pool of funds, to which money is contributed by the employee and employer, is often tax exempt.

Pension plans in Germany and other parts of Europe are different, however. There are three different types of pension plans in most European countries, including Germany. One is the government funded one, similar to the U.S.’s Social Security—another type of pension plan is similar to the one described above, and has much in common with a 40(k) plan. The last type is the private pension plan, which is what this article will go over— private pension plans are similar to personal savings and investment plans.

Private pension plans available in Germany


There are two private pension plans available to people living and working in Germany. The first is the Riester-Rente or Förder-Rente plan. One of the benefits of this particular plan is that it includes government bonuses, or subsidies. Not everyone is eligible for this personal pension plan. Those eligible for this plan include:

·         Anyone paying German wage or income taxes

·         Employees who are subject to withholding tax, or Lohnsteuer, who are enrolled in and contributing to the Public Retirement Fund

·         Persons receiving unemployment benefits

·         Military conscripts and persons completing the mandatory national service by doing community service work

·         Civil servants

·         German military members

·         Judges

·         Persons with permanent disabilities that prevent them from working

·         Spouses of eligible persons

The annual government subsidies fluctuate throughout the years. In order to receive the annual subsidies, those enrolled must contribute at least €60 per year; however, in order to receive the maximum subsidies, those enrolled must contribute at least 4 percent of their annual income. A maximum of €2,00 can be saved per year, including premiums and subsidies. Also, all contributions, including subsidies, qualify as special expenses for tax purposes and are tax deductible, with a maximum deduction of €2,00 per year.

Benefit payouts are subject to German income tax, however, they are not subject to any flat or capital gains taxes. Contributions made to the plan are guaranteed to the buyer at the end of the contract, and the money is not subject to any legal claims or attachments. An individual may begin to receive benefit payouts at age 60, and may receive payments in lump sums, annuities, or both.


The second type of personal pension plan available is the Rürup-Rente, or Basis-Rente, plan. This plan is geared more toward individuals who are freelancers, self-employed, and high-income earners. This plan is similar to the Public Retirement Insurance in the way it handles taxation and benefits. The difference, however, is that the Public Retirement Insurance plan is pay-as-you-go financing, whereas the Rürup-Rente works by capital cover.

The plan is centered on people with high tax burdens, however, anyone can participate if they so choose—persons who contribute to this plan, unfortunately, will not receive additional subsidies. To make up for that, contributors are allowed to deduct a large amount of their contributions from their taxes as special expenses. Also, there is no flat tax rate when revenues are collected.

There is a maximum amount that a person can invest per year that is tax-deductible. The amount for single persons is €20,000, and the amount for married couples is €40,000.

One of the major benefits of the Rürup-Rente is that the amount in the pension cannot be reduced, not even if the contributor is collecting unemployment or collecting benefits from Hartz-IV. The contributors are guaranteed their pension for life. Also, the amount of money invested is protected from any legal claims or attachments. In the event of the contributor’s passing, the money in the plan may not be transferred or inherited. Pension payment begins after the age of 60. Also, there is no lump-sum option and the plan may not be borrowed against or sold.

The details and ins and outs of pension plans may be confusing, but they are necessary to prepare for the future. To get started, talk to a financial adviser. 


Saskia Petz

Tanja Traut

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