When you make over 60k a year, the Rürup-pension plan (also called Base pension) is very interesting for you, because you can deduct 100% of the contributions from your income tax.
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High Income = High tax-refund
The reason that is so attractive is that in Germany we have a progressive tax system, that means the more you earn, the more tax you have to pay percentage wise. Which means that everything you make above 62k a year, you pay 42% tax on it. On the opposite side, that means, everything you are able to deduct gives you a 42% tax refund.
So let’s say you make 70k a year and invest 500€ a month/6k a year into a Basepension, you will get back 2500€ from the government by writing one additional number in your tax declaration. That means that you effectively only pay 290€ in, but 500€ go into the investment and compound and work for you. Of course, that is a huge advantage.
You can calculate how much tax you save with the income tax Calculator from the German Department of Finance. The tax system works progressive, that means, that the more income you have, the more tax you have to pay, not just in absolute numbers, but also percentage wise. When you have put in your Gross income, the calculator shows you how much income tax you pay in absolute numbers, as a percentage of your overall salary and your marginal tax rate. The marginal tax rate ist the tax rate, you pay for the highest part of your salary. While you pay 0 income tax for the first 10k you make, you pay 42% taxes for for every euro you make above 62k. On the one hand it is not pleasant to pay that much tax on higher incomes, on the other hand that means, everything you are able to deduct you get a tax refund with the same percentage.
How big is my tax refund with the Rürup-pension?
Gross Income | Tax refund in % | Tax refund in € (5k contribution) |
50.000€ | 33% | 1650€ |
60.000€ | 36% | 1800€ |
70.000€ | 39% | 1950€ |
>80.000€ | 42% | 2100€ |
Livelong monthly pension
Together with this advantage come some things you should keep in mind: The Rürup-pension is a pension product, which means that you get paid out a monthly lifelong pension when you retire, not a lump sum. Most people looking to take care of their retirement want a monthly pension anyway, but it is important to know. This pension is stable, it can not decrease nor can it run out.
Sticking with our example of investing 500€ a month into the Rürup-pension and starting out at 30 Years, you will have only from the base passion plan a pension 3k-5k in monthly lifelong pension, only from the base pension! After taxes, that’s 2.5k‑3.7k net in your pocket, for a 290€ net contribution.
Taxes on the pension
Very important: Taxes: Yes, the pension that you get when you retire you have to pay tax on, no social fees like on the government pension, just tax. For most people this will not be a high amount, because the taxable income in retirement for most people is lower, because the government pension is so low. In this case the progressive tax system works for you because on the first 10k you get, you pay 0 income tax and also with 40k pension it is only 20% taxes.
But let’s assume you have done a great job and have the same or even higher income when you retire and pay the same amount of taxes. Also then a base pension is very attractive, because the government gives you liquidity for decades to work with. When we stick to our example with the 6k investment a year, the government gives you 2500€ every year to work with over 30, 35 years.
When you invest that tax refund smartly, you will have far more money, multiples even, solely from investing the tax refund than you will ever pay tax on the pension. This principle I explain in detail on the perfect pension plan, which you can learn more about in this article: The Perfect Pension Plan.
Limits on deduction
The second important tax implication is that the deductions are limited. The limitation is as follows: Every individual can deduct 25.600€ minus the contributions toward the government pension. For example, when you make 60k a year your deductibility is limited at 14.4k a year, when you make 70k it is limited at 12.6k a year and any income above 85k it is limited at 9.9k a year. When you are married, you can add the two limitation numbers.
The investment in a Rürup-pension is freely choosable within the funds available at the insurance. The icing on the cake: There is no Capital Gains Tax on the investment while you are contributing.
One important note about flexibility: The contributions to the Base pension are flexible, that means that you can increase or decrease your contribution anytime. Additionally, you can get your pension anywhere in the world and enjoy retirement wherever you like.
Summary
Advantages:
✅ high tax refunds up to 48%
✅ free fund selection without capital gains-taxes
✅ high interest investment choosable
✅ up to 26.528€/year deductible
Disadvantages:
❌ money is not available until retirement
❌ taxes on the pension (taxes in pension are lower)
❌ no one-time payout available
When you want to see how the numbers on the Rürup-pension are for you individually and what insurance company for the Rürup-pension is the best fit for you, then schedule a free initial consultation with us and we as independent brokers scan the whole market with the same conditions you get with the insurance directly and see what is the best solution for you.
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