Private Pension Plans in Germany
Riester (Förder) Rente and Rürup (Basis) Rente – Supplement Retirement Insurance with Private Plans
Part of the 2001 legislative reform of the German Public Retirement System (GRV) included a reduction of the maximum government pension benefits. To allow people the opportunity to make up for the reduced government payments and to make available other private plans there were a couple of new voluntary private pension systems established. These plans were designed to offer advantages and benefits to certain groups of people depending on their economic, employment and tax situation and status.
As with most financial products the details of these plans can be quite complicated. It is highly recommended that competent and knowledgeable advice be gotten from experts before committing to any plan.
Below are some of the basics involved with the two plans. Your insurance broker or financial advisor can fill you in on additional details, costs and benefits.
Also known as Förder-Rente, this plan was conceived by and named after Walter Riester, a former German Secretary of Labor. An important part of this plan includes government subsidies (bonuses).
Those eligible for enrollment in this plan include (but may not be limited to): anyone paying German income or wage taxes; employees subject to withholding tax (Lohnsteuer) who are enrolled in and contributing to the Public Retirement Insurance; those receiving unemployment benefits; military conscripts and those completing the compulsory national service by doing community service work; civil servants; members of the German military; judges and people with permanent disability that prevents them from working. 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% 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 yearly government bonuses (subsidies) changed over the years but since 2008 they have remained the same: 154 euros if you are unmarried, 308 euros for married couples if certain conditions are met, 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.)
The Riester-Rente plans are certified and strictly regulated by the German government. Information regarding costs, benefits, agent commissions, fees and other details must be made transparent and explained fully to potential customers. Benefit payouts can begin at age 60 and are subject to German income tax, but are not subject to any sort of flat tax or capital gains tax. Any money you put into the plan is guaranteed to you at the end of the contract and is not subject to any legal claims or attachments. There are several different payout plans that may involve lump sum payments or some sort of annuity or a combination of the two.
Also known as Basis-Rente, this plan was developed after the pension reform by Bernd Rürup, one of Germany’s leading economists. 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 Rürup-Rente works by capital cover.
Anyone can participate but the plan is designed specifically for people with high tax burdens. Contributors to this plan do not receive any government bonuses (subsidies) as in the Riester-Rente. But, in return they 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.
In 2017 the maximum tax-deductible amount that can be invested in Rürup-Rente is 23,362 euro per year for single persons and 46,724 euro per year for married couples. The amount of savings can be divided freely between wife and husband.
The Rürup-Rente pays a guaranteed life-long pension. This pension amount cannot be reduced even if a person may be collecting unemployment benefits or benefits from Hartz-IV. Additionally 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. There is no lump sum option and the first pension payment may not be made before age 62. The plan may not be sold or borrowed against. The amount of tax deductibility increased by 2% from year to year starting out at 60% in 2005 for the first year. In 2017 84% of the amount is tax deductible.
There are features in both of these private plans that may be attractive to Expats living in Germany. Consult with an insurance agent or financial consultant to find out more.