Pension in Germany

Germany’s pensions will help you secure income in retirement - even if you decide not to retire in Germany. You can even save a lot of taxes with pensions in Germany!

Pension in Germany: The three different levels

The German pension system is build on three different pillars. The state pension, occupational pensions and private pensions. All of them are additionally divided in three different levels with different advantages and disadvantages. In the following articles are all three different pension levels in Germany explained. If you need help understanding pensions in Germany and choosing the right pension for you, feel free to reach out to us and book a free meeting here.

Pension system in Germany

German Pension System Explained

  • Level 1: German government pension and the private base pension with tax benefits in pay-in phase
  • Level 2: Five different types of company pension and the Riester pension, both with employer or government benefits
  • Level 3: Private pension with additional tax benefits in pay-out phase

Pension Level 1

  • Build from Government Pension and Base Pension
  • Tax benefits during pay-in phase possible
  • Secure your retirement with a guaranteed lifelong pension

Pension Level 2

  • Benefits from either your employer or the government
  • Secure your retirement with a lifelong guaranteed pension
  • Use your Riester Pension as collateral for your private home

Pension Level 3

  • flexible in case something changes in your life
  • Get your tax benefits during pay-out phase
  • Use your private pension as a collateral for real estate

Your Personal Best Pension in Germany

  •  Choose Level 1 if you have a high income, you want a tax-deductible disability income insurance or you are self-employed / a business owner
  • Choose Level 2 if you found your dream employer, you have kids or you want to buy a home in Germany for self-use
  • Choose Level 3 if you need flexibility, you wanna retire in your home county or you want to buy either a home or a rental property

The Company Pension in Germany

  •  Type 1: Direct Insurance
  • Type 2: Pension Fund
  • Type 3: Support Company
  • Type 4: Pension Company
  • Type 5: Pension Commitment

Pension in Germany: Deductions from your Payslip

When it comes to pensions in Germany, public pension is mandatory and also deducted directly from your payslip. But, not everybody get a payslip (e.g. self-employed people, business owner, etc.), know how to read it, or know where exactly the pension in Germany is deducted. We will help you with the following articles, so that you, hopefully, become an expert in pension deductions and in general with the German social security system.

Pension from Payslip

  •  Public pension in Germany is automatically deducted from your payslip
  • Public pension can be deducted from your tax declaration
  •  Public pension has a maximum pay-in threshold of 85.200€

Pension for Self-employed

  • Needs to take care of the pension on his/her own
  •  Can choose between private pension, public pension, and no pension in Germany
  •  Base pension (Rürup pension) looks like a good option

Social Security System

  • Contribution of 18,6% of your gross salary
  • Maximum of two pension points per year
  •  The average pension in Germany is 1.588€ per month (gross)

Our "Pension In Germany" YouTube Playlist

Every week we publish at least 1 video on our PerFinEx YouTube channel on all things personal finance in Germany. Below you can find our playlist that contains all videos related to German pensions. That is all you need to bring your pension game to the next level.

Pension Calculators

Are you looking for the right type of pension in Germany for your personal financial situation? Our pension calculators will help you to determine which German pension level suits your life the best way possible, as well as which type of pension in Germany you should choose within that pension level.

Pension Age Calculator

Calculate your costs of early retirement or your benefit of later retirement in terms of the difference in life-long monthly pension from the public pension in Germany (DRV).

Public pension Calculator

Calculate your monthly pension in the retirement age from the public pension in Germany (Deutsche Rentenversicherung) to know how much you need to save additionally.

Base Pension Calculator

Calculate your tax benefits from a base pension level 1 (Rürup-Rente) & how much the German government will help you save towards your secure retirement income.

Retirement Income Calculator

Calculate your NET retirement income from public pension in Germany (Deutsche Rentenversicherung) & private sources (investments, rental income, private pensions).

Riester Pension Calculator

Calculate the government benefits that you will get from a Riester pension in Germany in form of tax benefits & government subsidies (yearly bonus for adults and children).

FAQ

Unfortunately, there is no best pension plan in Germany. Instead, pension plan selection should be based on how you see your life in the future in order to find the best possible plan for your individual situation. Our recommendation is to discuss your situation with an expert and select the right pension plan based on that.

Basically, if you retire in 2022, 82% of your pension will be taxed. For every year you retire later, 1% is added. So, for example, if you retire in 2030, you will have to pay tax on 90% of your pension. From the year 2040, 100% of your pension will be taxed. However, it is important to note that this taxation is only applied to pension benefits above the basic tax allowance, which (as of 2022) is €10,347 (€20,694 for married couples).

Unfortunately, there is no one best pension fund. Each pension fund is individual and includes different terms and conditions, which may mean that it does not fit your selection criteria. Our recommendation is that you don't look for the "apparent" best pension fund, but rather discuss your future/upcoming pension situation with a financial advisor to build a solid plan for your retirement.

You must have paid into the governmental pension insurance in Germany for at least 5 years to be entitled to a pension in Germany. Once this has been done, you will receive your pension at the official retirement age.

In Germany, as an employee, the pension contribution of 18.6% of your gross salary is automatically deducted. If you have paid into the German pension fund for at least 5 years, you will receive a pension based on pension points when you reach the official retirement age. The average amount is 856,05€ for women and 1203,53€ for men (in 2021). This is why the German Pension Insurance recommends saving for retirement, for example, with a private pension.

The official retirement age in Germany starts at the age of 67. The earliest possible retirement age in Germany is 62. However, this is only the case if you have paid 60 months into the government pension fund. This also applies to the base pension. With pension level 2 and 3, you can retire earlier, but then the tax benefits you will receive at retirement age will be lost.

Our service and contact

Personal finance in Germany can be difficult – especially as an expat with limited German language skills. We make your financial planning as easy as possible. All you need is a device that is connected to the internet to secure a free online meeting with us.

Reach out to us and secure a free 30-minute online meeting with us.