When it comes to planning for your retirement in Germany, there are a variety of options available to you. The German government offers significant benefits in private pension plans when you save for your retirement, and these benefits are organized into three different brackets, each with its own advantages and disadvantages. In this article, we will give you an overview of the three levels of pension plans available, so you can decide which one is best for you.
Table of Contents
Private Pension Level 1: High Income = High tax-refund
The private pension plan on Level Number One is the so-called Basepension or Rürup-Pension. This is a private pension plan, where the contributions are 100% deductible from your income tax, which is a huge advantage, because you get 42–48% of your contribution back, when you make over 62k a year. It is a pension product, that means that the money is not available until you retire, then you get paid out a monthly lifelong pension that can not decrease or run out. The Base pension is mainly interesting for individuals with a high income, because they get massive tax refunds, have high interest and a high pension. You can read more about the Basepension here: Tax-refund with the Basepension.
✅ high tax refunds up to 48%
✅ free fund selection without capital gains-taxes
✅ high interest investment choosable
✅ up to 26.528€/year deductible
❌ money is not available until retirement
❌ taxes on the pension (taxes in pension are lower)
❌ no one-time payout available
Private Pension Level 2: Riester and company pension
Riester Pension Plan:
Level Number two includes two pension plans: The Riester pension and the company pension. The Riester pension is not attractive for the majority of people because of its low interest and inflexible structure.
✅ bonuses for families
❌ very low interest
❌ bonuses are deducted form tax advantage
❌ taxes on the pension
❌ high cost
❌ view providers
Company Pension Plan:
However, whether a company pension is worth it depends on your employer’s offering. Some employers only offer one plan, while others leave the choice up to their employees. When you have the freedom to choose your plan, it can be a very attractive option as it allows you to convert a part of your salary before taxes and social fees, and your employer gives you a bonus on top.
✅ social-fees deductible up to 292€ per month
✅ employer bonus
✅ lump-sum payout possible
❌ low interest in most plans
❌ highly dependent on employer
❌ new cost with every job change
❌ taxes and social fees on payout
Private Pension Level 3: Flexible Pension Plan
The pension plan on level three is also called the flexible pension, because it offers a lot of flexibility. Unlike the Base Pension, you can take your money out anytime, and when you retire, you can choose whether you want the lifelong pension or the payout at once. The government also offers huge tax benefits, such as 0% capital gains tax on your investment while the money is in the plan and low taxes on the payout when you retire. You can read more about the Flexible Pension here: The Flexible Pension Plan.
✅ free fund selection without capital-gains-taxes
✅ tax advantages on payout
✅ lump-sum payout or livelong monthly pension choosable
❌ no immediate tax advantages
❌ higher cost than a broker account
❌ only profitable long-term
So this is an overview over the different pension options available. In general, you can say that for most people either the Basepension and the flexible pension are very interesting or what I call the perfect pension plan, which is a combination of both. You can read more about the Perfect Pension Plan here: The perfect pension plan.
Of course, in an individual consultation we help you figure out what plan fits you best, answer the questions you might have and give you our recommendation for your individual situation.