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Level 3 Pension: The Flexible Pension Plan

When you are looking to invest money with a good interest for your re­ti­re­ment and get a huge tax break from the go­vern­ment on top of that, the level 3 flexible pension plan might be very in­te­res­t­ing for you. 

Table of Contents 

How the level 3 Pension works

The level 3 Pension works as follows: You pay a monthly con­tri­bu­ti­on towards the pension plan and the money is com­poun­ding in funds until you retire. In your re­ti­re­ment you have the option to take all the money at once or get a lifelong monthly pension from the insurance or do a mix of both.

Level 3 Pension vs. broker account

So far so good, but what makes the level 3 pension plan different from a broker account where you can also invest in funds? It is the long term re­ti­re­ment aspect. Of course fund investing should always be long term, but when you invest with a broker, that means with a bank, you pay massive amounts of taxes long term because you are subject to full capital gains taxation.

And don’t get me wrong, we are offering broker accounts ourselves and when you want to invest for your re­ti­re­ment with a broker account, this is ab­so­lut­e­ly fine, you can do so with us, but when we look at how the go­vern­ment has set tax in­cen­ti­ves, a broker account is for short to midterm investing and a pension plan is better for long term investment. 

Long-term tax benefits

Because when you do the same in­vest­ment in a pension plan, while you are con­tri­bu­ting you pay 0 capital gains tax, which of course helps the money compound way quicker. Also, when you pay out the money after the age of 62 you get a massive tax break when accessing the money, because normally you have to pay capital gains tax on all the profits, in the pension plan, you get 50% of the profits tax-free in your pocket and only need to tax the other half. The tax break is even bigger, when you take the monthly pension, then you pay almost no tax on that. 

Further ad­van­ta­ges

In addition, the insurance has some services that make your life a lot easier. You can read more about the ad­di­tio­nal services in a pension plan here: Ad­di­tio­nal Services in a Perfect Pension Plan.

And of course a pension plan has costs for the services, a good pension plan has costs of around 1% of your capital annually. Which in my opinion is very fair con­side­ring all the tax ad­van­ta­ges and extra services you have.

Summary: The level 3 flexible pension plan is in­te­res­t­ing for you, when you want to invest long term for your re­ti­re­ment and want to have close to 0 work with it. If you want to see how the numbers for the level 3 pension plan are for your in­di­vi­du­al situation, feel free to book yourself a free initial meeting with us. 



✅  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

About the Author

David Reinhard Profilbild

David Reinhard

Senior Consultant 
David is our expert for English-speaking customers as well as US citizens. He helps customers un­der­stand and make the best use of the German system. 

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