German Pension Plans (2023)

German Pension Plans (1)This article is part of a series describing different pension systems around the world. You will find the other articles already published at the bottom.

History of the German Pension Plan

Otto von Bismarck was a national-liberal statesman of the late 19th century that had the ear of Emperor Wilhelm. He is credited with establishing social insurance, partly which benefited the elderly and sickly. From 1891 it has been possible to obtain an old-age pension if over the age of 70 years old. This was a little dubious as the average life expectancy was 45 years at the time.

The Imperial Insurance Code in 1911 helped modernize the pension scheme. This also allowed for support of the bereaved in cases where they could not sustain themselves after the death of their spouse. As the federal republic grew, so did means of support. The pension reform of 1957 led to a pay-as-you-go scheme and a formula that calculated the obtained earnings that would determine the old age benefit. Further reforms occurred in the 1970s, establishing a retirement age and including self-employed people.

State Pension Plan

The German pensions system is managed centrally from Berlin by the Buendesversicherungsanstalt fuer Angestellte (BfA). Pension insurance provides you with protection against the risks of reduction in earnings capacity, old age and death.

The system is "pay as you go" which means that the contributions are deducted directly from the worker's salary each month. Deductions are usually labeled as "RV-Beitrag" on the pay slip. The "RV" stands for "Rentenversicherung" which literally translates to "retirement insurance".

Who Contributes?

Participation is mandatory for all permanent employees in Germany, regardless of nationality. If a salary is being paid in Germany, and German taxes are being paid, the worker must pay the state pension contributions.

(Video) BASICS GERMAN PENSION SYSTEM - RENTERNVERSICHERUNG in ENGLISH

International workers may be granted an exception if they work for an international company and have been transferred for a period of less than 5 years as a "detached worker".

Contributions

Contributions are paid half by the employee and half by the employer. The contribution rate is currently 19.5 percent of the gross salary (gross = total salary before tax). This contribution is shared equally between employee and employer, meaning the employee usually pays 9.75 percent of their gross salary and the employer pays the same. The amount of the contribution is proportional to income, but only up to the contributions limit.

Self-employed workers are not legally obliged to contribute to the state pension fund. If they choose to contribute, they must pay the full amount entirely themselves.

Benefits

State pension benefits are paid out on retirement which begins at age 65-67 for both males and females. You must have contributed into the system for at least 5 years in order to qualify for benefits.

The benefits paid out are about 70 percent of the average net income you earned while working. The exact amount paid out depends on how much you put in and for how long.

For example, if you worked from the age of 25 to 65 with an average yearly salary of 50,000 euro, your monthly pension benefits will be about 800 euro. To calculate your specific benefits, use this pension calculator.

(Video) German Pension System Explained: For Expats by Expats in Germany

Claiming German Pension from Abroad

Non-EU citizens can claim their German state pension contributions if they contribute in Germany for less than 5 years (60 monthly contributions). The claim can only be made 2 years after leaving Europe. Only the employee contributions are refunded, not the employer's. An alternative to claiming the fund is to wait until you are 67 and then you will be paid your full pension.

There is controversy about whether a British or EU citizen can get a refund. The best option is often to roll these funds into an approved pension fund.

To make the refund claim, access the V900 forms from BFA. There are two more supporting forms called "R851" and "A3490". These two forms are country specific. After 2 years, go to the German embassy you are leaving from and complete the A3490 form.

The returned funds usually take 4 to 6 weeks to process. They should transfer the funds to a foreign country, or you can keep your German bank account open.

Company Plans

A bAV betriebliche Altersvorsorge is designed to supplement public pension plan. Arranged through your employment, government tax breaks and subsidies are available. Company plans are not compulsory, but about three-fifths of the working population invests in some form of company plan.

Contributions

Different companies offer different plans. The employee contributions are typically 3 to 15 percent of monthly gross salary. The company usually matches the employee contribution with a similar amount.

(Video) Which German Pension Is Best for You? | German Pensions with Scenarios for Expats Living in Germany

Most company pension schemes work with what is known as a "managed fund", meaning contributions are placed into a fund which is then invested for in various stocks and shares. A good return is around 9 percent growth per year.

Benefits

Benefits vary as it depends on the length of investment, amount of money invested, and success of the investments. Make sure that you have faith in company pension manager as their success will directly reflect on how much you may collect. A private plan offers greater independence.

In general, pensions on company plans usually commence at age 65. This is gradually increasing to 67.

Company Pensions for Expats

For non-Germans, it is important to understand every aspect of a pension before signing up. Establish how long you'll be contributing to this fund. Transferring a pension is difficult and if you plan to switch companies in the near future or frequently, a company pension plan is not a good value. Common restrictions when transferring a pension are a minimum number of years with the company.

If you must cancel a pension scheme and claiming back the lump sum, most of the fund will be lost. Only about 25 percent is usually available.

Private Pension

The government is encouraging the adoption of private pensions through tax breaks and subsidies. This is because there are planned cuts to the current state pension benefits. These can be arranged through your bank or at most insurance company. If the policy is in German, consult with a professional to insure you understand all terms. Different plans have different terms and fees so shop around to find the policy that suits you. There are two primary types of plans: Foerder-Rente and Ruerup-Rente.

(Video) Germany’s poor pensioners | DW Documentary

Foerder-Rente

This plan is named for Walter Riester, a former German Secretary of Labor. An important part of this plan includes government subsidies (bonuses).

    Those eligible for this plan include:
  • Anyone paying German income or wage taxes
  • Employees subject to withholding tax (Lohnsteuer) who are enrolled in and contributing to the Public Retirement Insurance
  • People receiving unemployment benefits
  • Military conscripts and those completing the compulsory national service by doing community service work
  • Civil servants
  • People with permanent disability

(Spouses of all eligible persons may also enroll in the Riester Rente plans)

To receive the government bonuses those enrolled in the plan must contribute a minimum payment (Sockelbeitrag) of 60 euro per year. To receive the maximum bonuses, at least 4 percent of annual income must be paid into the plan (Mindesbeitrag). A maximum of 2,100 euros per year (including the premiums and bonuses) can be saved.

The current government bonus is 154 euros if you are unmarried and 308 euros for married couples. There is an additional bonus of 185 euros for each child born before 2008 and 300 euros for every child born after 2008. An additional one-time bonus of 200 euros is paid to a new policyholder if under age 25 in the first year of the contract. All contributions (including the bonuses) qualify as a special expense for tax purposes and are tax deductible. (The maximum deduction is 2,100 euros per year.)

Ruerup-Rente

Also known as Basis-Rente, this plan was developed by Bernd Ruerup- a leading economist. It was developed for the self-employed, freelancers and high-income earners and has taxation and benefits attributes similar to the Public Retirement Insurance. However, unlike the Public Retirement Insurance, which is pay-as-you-go financing, the Ruerup-Rente works by capital cover.

Contributors to this plan do not receive any government bonuses. They do have greater flexibility and are allowed to deduct a considerable amount of their contributions from their taxes as special expenses. Additionally when revenues are collected they do not come under the flat tax rate.

(Video) HOW to CLAIM YOUR GERMAN PENSION MONEY - Deutscherentenversicherung- ENGLISH

The maximum tax-deductible amount that can be invested is 20,000 euro per year for single persons and 40,000 euro per year for married couples. The amount of savings can be divided freely between wife and husband.

The Ruerup-Rente pays a guaranteed life-long pension. This pension amount cannot be reduced even if a person may be collecting unemployment benefits. The amount invested is protected from any attachments or legal claims. The money in the plan normally may not be passed on or inherited after your death. The first pension payment may not be made before age 60. The amount of tax deducibility in 2011 is 72 percent. There is no lump sum option.

EasyExpat Series on Pension Plans

See our explanations on other pension systems:

  • UK Pension Plans
  • USA Pension Plans
  • French Pension Plans

FAQs

What can I do if my pension is not enough? ›

If you can't afford to save for a pension

You may be able to pay extra amounts (contributions) into a pension fund when you are working, to make up for lost time. You'll still be able to get basic State Pension and you may be able to get other help from the state, for example help to pay your rent or council tax.

How much German pension will I get? ›

According to data provided by the Federal Statistical Office and the German pension authority (Deutsche Rentenversicherung Bund), this increase will raise the pension value in western Germany from 34.19 to 36.02 euros and in the eastern states from 33.47 to 35.52 euros.

Can I get my pension money back if I leave Germany? ›

If you have paid mandatory contributions to the German pension fund for less than 5 years altogether and currently live outside of the EU , you may be able to have your pension contributions refunded. Non- EU citizens can apply for a refund if more than 24 months have passed since their last contribution.

Which pension plan gives highest return? ›

We at Scripbox have curated 10 best Retirement Plans available in India for you –
  • LIC Jeevan Akshay 6 Pension Plan.
  • Jeevan Nidhi Pension Plan of the LIC.
  • SBI Life Saral Pension Plan.
  • Reliance – Smart Pension Plan.
  • HDFC Life – Click to Retire.
  • HDFC Life – Assured Pension Plan.
  • Bajaj Allianz – Pension Guarantee.

What happens if you don't have enough qualifying years for State Pension? ›

If you don't have enough qualifying years to get a full State Pension, you may be able to make up gaps in your National Insurance contribution record by paying voluntary contributions. There is a time limit for doing this.

How much pension is a good pension? ›

What is a good pension amount? Some advisers recommend that you save up 10 times your average working-life salary by the time you retire.

How much is German pension a month? ›

Thankfully, the German pension system has a mandatory pension contribution that amounts to 18.6% of your gross income every month (2020), called the Gesetzliche Rentenversicherung. Don't worry, your employer meets your contributions halfway, so you both contribute around 9.3%.

Which European country has the best pension? ›

Top countries with the best pensions in 2022
  • Iceland.
  • Netherlands.
  • Denmark.
  • Israel.
  • Finland.
  • Australia.
  • Norway.
  • Sweden.
13 Oct 2022

How much pension do you get after 20 years? ›

With 20 years of creditable service, you will receive a retirement benefit of 50 percent of your Final Average Salary (FAS).

How many years do you have to work in Germany to get pension? ›

If you have paid at least 45 years of compulsory contributions, for example for an insured occupation, self-employed work, long-term care, unemployment, illness or including time spent bringing up children, you can draw a pension from the age of 63 without deductions.

Is pension good in Germany? ›

Germany's public pension is not enough to provide you with a comfortable living in old age. It should be seen as a minimum pension. In practice, it leaves many without an adequate minimum pension, especially women who worked part of the time, self-employed and those who arrived late in life in Germany.

Can I close my pension and take the money out? ›

You can take up to 25% of the money built up in your pension as a tax-free lump sum. You'll then have 6 months to start taking the remaining 75%, which you'll usually pay tax on. The options you have for taking the rest of your pension pot include: taking all or some of it as cash.

What is better than a pension? ›

For those who feel more comfortable with risk, another traditional pension alternative is to invest in stocks and shares, property or other asset classes to save for retirement. There are lots of different investments that an individual could make, such as a buy-to-let property or investing in a commodity like gold.

What is the average yearly return on a pension? ›

Average annual annuity income was 3.9% in 2021, a positive change from the falls of the three previous years.

Is a pension better than a 401k? ›

Pensions offer greater stability than 401(k) plans. With your pension, you are guaranteed a fixed monthly payment every month when you retire. Because it's a fixed amount, you'll be able to budget based on steady payments from your pension and Social Security benefits. A 401(k) is less stable.

What happens if you pay more than 35 years National Insurance? ›

Those with 35 years will simply get the full flat-rate pension and anything beyond this will simply help with the general cost of providing pensions to today's retired population.

Why do I not get the full State Pension? ›

You might not get a full State Pension if you contracted out

Normally, you need to have paid 35 years of National Insurance contributions to qualify for the full new State Pension. However. Back in the day many workplaces offered pension schemes that allowed you to 'contract out' of the State Pension.

How do people who have never worked get State Pension? ›

If you have never worked, and therefore never paid NI, you may still be eligible for the State Pension if you have received certain state benefits, for example carer's allowance or Universal Credit.

How much pension do I need at 60? ›

As a general rule of thumb, you need 20 – 25 times your retirement expenses.

How much do I need to retire at 55 with a pension? ›

According to these parameters, you may need 10 to 12 times your current annual salary saved by the time you retire. Experts say to have at least seven times your salary saved at age 55. That means if you make $55,000 a year, you should have at least $385,000 saved for retirement.

How much pension do I need to retire at 60? ›

The 25x rule is a good way to check whether you have enough money in your pension pot to retire at 60. This rule says that you need to save 25x your retirement expenses before you retire.

What happens to my pension when I leave Germany? ›

The good news is that it's not a problem to have your pension transferred to a foreign bank account - accrued pension entitlements are independent of your place of residence and remain so for life. Wherever you live, you can continue to receive the money and use it to fund your retirement.

Do I have to pay tax on my German pension? ›

The German social security pension is taxable in Germany under Article 17(2) of the UK-Germany double tax agreement.

How much pension do I get at 65? ›

Your CPP payment is based on how much you paid into the program over your working life and how old you are when you begin receiving the benefit. For 2022, the maximum starting pension for a new retiree at age 65 is $1,253.59/month. The average amount paid out to new retirees at 65, however, is $702.77/month.

What is the highest pension in the world? ›

According to a recent survey, Iceland, the Netherlands and Denmark have the world's best pension system. Workers may have to rethink their retirement plans, warns a survey ranking the world's pension systems.

Where is the highest pension in the world? ›

Netherlands

Does everyone in Germany get a pension? ›

If you have worked and paid contributions in Germany for more than 60 months, you will receive a German pension after reaching the official German pensionable age. In addition to the periods of contributory employment, many other periods are considered, including: Child-rearing (until three years of age)

How much is a $30000 pension worth? ›

As an example, examine how much an earned pension income of $30,000 would add to a person's net worth. A defined benefit plan income of $30,000 annually is $2,500 per month, which is 25 times $100.

Can I take my pension at 55 and still work? ›

The short answer is yes. These days, there is no set retirement age. You can carry on working for as long as you like, and can also access most private pensions at any age from 55 onwards – in a variety of different ways. You can also draw your state pension while continuing to work.

Is it better to take monthly pension or lump sum? ›

A Lump Sum Gives You More Control of Your Assets

By accepting a lump sum from the pension, you gain the control over your income assets. Even if the income generated from the lump sum is less than the promised annuity payment from the pension, you gain control over the assets.

Can I get pension after 5 years? ›

To be vested (eligible to receive your retirement benefits from the Basic Benefit plan if you leave Federal service before retiring), you must have at least 5 years of creditable civilian service. Survivor and disability benefits are available after 18 months of civilian service.

Can I retire after 15 years of government service? ›

Retirement under RA 8291 may be availed by those who have rendered at least 15 years of service in government and must be at least 60 years of age upon retirement. Also, they must not be permanent total disability pensioners.

Do expats get pension in Germany? ›

Expats in Germany can pay a maximum of €23,712 annually into the basic pension plan. The maximum amount is doubled for couples, and 86% of contributions offset taxes (this is set to change to 100% by 2025).

Can you live off a pension? ›

If you have worked enough to get Social Security benefits, you can live on that income after you retire, if you are willing to have a modest lifestyle. If your company offers a pension, you may be able to rely on that when you retire, instead of your own savings, especially if you have no mortgage.

Are pension plans worth it? ›

Inculcates a Savings Habit

A pension plan is a long term investment where you pay small and regular premiums and build a retirement corpus. This helps inculcate fiscal discipline. If you start early, in your 20's, you can save a sizeable amount by the time you retire (say at 60).

Can I withdraw 100% of my pension? ›

You can take your whole pension pot as cash straight away if you want to, no matter what size it is. You can also take smaller sums as cash whenever you need to. 25% of your total pension pot will be tax-free. You'll pay tax on the rest as if it were income.

What happens to my pension if I leave my job? ›

Typically, when you leave a job with a defined benefit pension, you have a few options. You can choose to take the money as a lump sum now or take the promise of regular payments in the future, also known as an annuity. You may even be able to get a combination of both.

Can I transfer my pension to my bank account? ›

A pension cannot be transferred to a bank account in the same way it can to a different pension scheme. To place your money into a bank account, you would need to withdraw the funds, and to do so you must be 55 or over and have an eligible scheme.

Is it better to have savings or a pension? ›

Pensions have many important advantages that will make your savings grow quicker. A pension is basically a long-term savings plan with tax relief. Getting tax relief on pensions means some of your money that would have gone to the government as tax goes into your pension instead.

What is the 4% pension rule? ›

The 4% rule is an attempt to do just that: it's a long-established rough estimate of how much you can safely afford to withdraw from your pension pot during retirement. The aim is for your investment fund to last as long as you need it, with investment growth compensating for your withdrawals.

How much should I have in my pension at 52? ›

At the age of 50, ideally, you would have wanted to save over 4 times your annual salary if you would like to retire comfortably. At this age, you should be considering putting 25% of your salary into your pension pot, if not more.

How much money can I have and still get full pension? ›

From 20 September 2022 the full pension is available, under the assets test, for homeowner singles whose assessable assets are under $280,000 – for homeowner couples the number is $419,000. The numbers for non-homeowners are $504,500 and $643,500 respectively.

How are pension funds performing in 2022? ›

Equable estimated that the average return for 2022 will be a loss of 10.4 percent. According to the report, this will be the first negative average for public pension plan returns since 2009.

Should I cash in my pension at 55? ›

You might be able to start receiving an income from it at age 55. However, the income you get is likely to be reduced, as you're taking it earlier than the normal pension age of the scheme. Equally, if you begin taking money from it later, you could get a higher income.

Is it worth starting a pension at 60? ›

You can still be financially secure at retirement even if you start saving with a workplace pension later in life. Every time you pay into a workplace pension, you'll get contributions from your employer and extra money from government tax relief if you're eligible.

Why are companies eliminating pension plans? ›

Companies choose defined-contribution plans instead because they are less expensive and complex to manage than pension plans. The shift to defined-contribution plans has placed the burden of saving and investing for retirement on employees.

How can I increase my pension amount? ›

But if you want to get a higher pension, you will have to shift a chunk of your EPF to EPS account. You can apply via your employer to the EPFO to deduct a sum retrospectively equal to 8.33% of your basic + DA towards EPS and shift extra amount from the PF account to the EPS retrospectively!

Why do I not get full State Pension? ›

You may not qualify for the Basic State Pension yourself because you haven't paid enough national insurance contributions or received enough national insurance credits. You may still be able to claim Basic State Pension in some situations. You could also be eligible for Pension Credit to top-up your income.

How much money can you have in the bank and still get a full pension? ›

It comes down to the amount of savings you already have, plus all sorts of asset types combined. For example, if you are a single homeowner you can get a full pension with an asset limit of $270,500. As a couple with a home and combined assets your limit is reached at $405,000 to receive a full pension.

How can I get more State Pension? ›

You can get more State Pension by adding more qualifying years to your National Insurance record after 5 April 2016. You can add qualifying years until you reach the full new State Pension amount or reach State Pension age - whichever is first.

What is the minimum pension per month? ›

The amount of pension is 50% of the emoluments or average emoluments whichever is beneficial. Minimum pension presently is Rs. 9000 per month. Maximum limit on pension is 50% of the highest pay in the Government of India (presently Rs. 1,25,000) per month. Pension is payable up to and including the date of death.

How do I get a 50k pension? ›

Rs 50,000 monthly pension from NPS

If you only use the mandatory 40% NPS corpus for purchasing annuity, then at annuity rate of 6%, you need a Rs 2.5 crore NPS corpus. Out of this, 40% or Rs 1 core will be used for purchasing annuity. This annuity (at 6%) will generate Rs 6 lakh yearly or Rs 50,000 monthly pension.

Do you get a full State Pension if you've never worked? ›

If you have never worked, and therefore never paid NI, you may still be eligible for the State Pension if you have received certain state benefits, for example carer's allowance or Universal Credit.

Does everyone get full State Pension? ›

Not everyone will get the full new State Pension amount, it will depend on your National Insurance record. The full amount of the new State Pension is set above the basic level of means-tested support (this is Pension Credit standard minimum guarantee).

What will the full State Pension be in 2022? ›

In April 2022, there was a 3.1% increase in the full new state pension. Whether you actually get the full amount is based on your national insurance record when you reach state pension age. You will only receive the full amount if you have a minimum 35 full qualifying years of contributions.

Does money in bank affect pension? ›

The amount of money you receive from the age pension you receive depends on your age, wealth and income. It can be affected by the amount of money you have in your bank account as well as in your super fund.

Does owning a house affect your pension? ›

Your home is not counted as an asset when calculating pension or payment, but it does affect how your pension or payment is assessed under the assets test. If you are a homeowner your asset value limit is lower than someone who does not own their residence.

What happens when you max out your pension? ›

If the total value of your pension benefits exceeds the lifetime allowance when a check is done, there will be tax to pay on the excess. This is called the lifetime allowance charge. The way the charge applies depends on whether the excess is taken as a lump sum or as income.

Can I retire at 60 and claim State Pension? ›

Although you can retire at any age, you can only claim your State Pension when you reach State Pension age. For workplace or personal pensions, you need to check with each scheme provider the earliest age you can claim pension benefits.

Can you get two pensions? ›

Only a few plans allow people to take a combination of payouts. You may decide that the value of your pension is too small to do both. Some married couples may choose to take one spouse's pension as a lump-sum payout and the other spouse's pension as a monthly payment.

Can I take my State Pension at 55 and still work? ›

The short answer is yes. These days, there is no set retirement age. You can carry on working for as long as you like, and can also access most private pensions at any age from 55 onwards – in a variety of different ways. You can also draw your state pension while continuing to work.

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