Understand the pensions in Germany as a foreigner with our insightful guide. Explore eligibility criteria, pension contribution options, and essential insights tailored for expats in Germany. Explore the German pension system to find the best pension options for your retirement as a foreigner in Germany.
Key Takeaways
- You should save for your retirement by taking at least one of the pension plans in Germany.
- German pension system offers several pension schemes. Different pension schemes offer different advantages. Hence, you should know what pension plans are available in Germany and how they work.
- All employees are compulsorily insured under public pension insurance in Germany.
- The Riester pension plan is worth it for “low earners” and “average earners with children.”
- You can save up to 26,528 € in taxes by taking a Rürup pension policy.
- Company pension schemes are for employees only. These pension policies make sense if the employer contributes at least 25% to the company pension plan.
- We don’t find private pension plans in Germany worth it.
- You should invest in an ETF savings plan or real estate for better returns than a pension plan in Germany.
This is how you do it
- Learn about the different pension schemes in the German pension system. You can find everything you need to know about pensions in Germany in our well-researched guides.
- Check which method to save for retirement makes sense based on your situation.
- Consult a fee-based advisor for personalized advice.
- Compare different pension schemes on the comparison portal Check24*.
- You can open a free depot account with Scalable Capital* and start investing in an ETF savings plan.
Table of contents
Finding the right pension plan in Germany can be a daunting task. We developed some principles to help you find the right way to save for your old age.
We also created categories based on your age, occupation, and income to make finding the right pension scheme easier.
German pension system offers a variety of pension schemes. Each pension plan has a target audience that benefits the most.
But before we dive into which pension insurance is best for you, let’s look at the principles.
Principles for saving for your retirement
- Irrespective of your age, income, and occupation, you must build your retirement provision.
- You should have at least two different ways to save for your retirement. This is because one income source is not sufficient to support your lifestyle after retirement.
- You should have at least one type of pension insurance plan in Germany to save for your old age.
- Depending on your age, income, marital status, and occupation, you should have an ETF savings plan, real estate investment, or another pension plan.
German pension system
German pension system offers the following main pension insurance schemes.
- Statutory pension insurance / State pension insurance
- Private pension insurance
- Riester pension scheme
- Rürup pension plan
- Company pension plan
State pension plan in Germany
German state pension is one of the struggling pension systems in the world. The German population is getting older. Hence leaving fewer people to finance the pension.
The minimum pension level in 2030 under the statutory pension scheme will also decrease to 43%. So, relying only on the statutory pension in old age is not wise.
Thus, you must supplement your retirement savings in another way.
Private pension plans for expats in Germany
Several private insurers offer pension plans in Germany. However, we don’t find any private pension plans worth considering.
Some insurers claim high returns by investing your contributions in the stock market. But why do you need a pension plan to invest in the stock market? You can start an ETF savings plan for free instead.
Yes, the capital gains on your pension contributions are tax-free. But you pay taxes once you receive the pension after retirement. You also pay the administration fee to the private insurer. Moreover, you lose access to your money.
Thus, investing in an ETF savings plan instead of a private pension makes more sense.
You can open a free depot account with Scalable Capital* and start investing.
Riester pension in Germany
In the Riester pension plan, you enjoy state subsidies and tax benefits.
Here are the Riester pension benefits.
- 175 € basic allowance
- 300 € child allowance per child (born after 2008), 185 € child allowance per child (born before 2008)
- 200 € joining bonus for young professionals
- You can deduct up to 2100 € from taxes
You must pay at least 4% of your gross annual income to be eligible for the state allowances.
Riester pension is attractive for “low earners” and “average earners with children.” However, only people compulsorily insured under state pension can take a Riester pension plan.
Thus, the self-employed cannot take a Reister pension scheme.
You can compare the Riester pension offers on the comparison portal Check24*.
Rürup pension in Germany
- Rürup pension (basic pension) is a private pension subsidized by the state.
- The maximum tax-free amount you can contribute to Rürup pension insurance is 26,528 € as of 2023.
- You cannot cancel a Rürup contract. You can only reduce or stop paying the contributions.
- Creditors cannot access the capital saved under Rürup pension in bankruptcy. Hence, your money is safe in case of personal bankruptcy.
- Rürup pension only makes sense when expecting a lump sum liable for taxation. You can take a Rürup pension plan by paying a one-off lump sum. It’ll save you taxes while securing a lifelong pension.
- You can compare different Rürup plans on the comparison portals Check24*.
Company pension in Germany
- The company pension plan is for employees only. And every employee in Germany has the right to get a company pension plan.
- Every employer in Germany must contribute at least 15% to the employees’ pension contributions on top.
- A company pension is worth it if your employer contributes more than 25% to the company pension plan.
- Another scenario in which a company pension scheme makes sense is
- the company pension plan guarantees at least 2% interest
- and the option to get the complete pension in one lump sum.
Find the right pension scheme in Germany
Pension insurance plans for employee
The table below shows the best pension options for you prioritized based on your occupation, age, marital status, and income.
Note: It’s impossible for us to weight in all the factors relevant for you. The table is for reference only. We recommend consulting a fee based advisor to get a personalized advice.
| Employee | 18 – 45 years old | 45 – 60 years old |
|---|---|---|
| High earner | – Compulsorily insured under state pension scheme – ETF savings plan – Real estate investment – Company pension plan if the employer contributes more than 25% to the pension savings. | – Compulsorily insured under state pension scheme – Real estate investment – Company pension plan if the employer contributes more than 25% to the pension savings – Rürup pension if you expect a lump sum amount liable for tax. |
| Average earner | – Compulsorily insured under state pension scheme – ETF savings plan – Real estate investment – Riester pension scheme, if you have two or more children – Company pension plan if the employer contributes more than 25% to the pension savings | – Compulsorily insured under state pension scheme – Real estate investment – Riester pension scheme, if you have two or more children – Company pension plan if the employer contributes more than 25% to the pension savings. – Rürup pension if you expect a lump sum amount liable for tax. |
| Low earner | – Compulsorily insured under state pension scheme – Riester pension plan – ETF savings plan – Company pension plan if the employer contributes more than 25% to the pension savings | – Compulsorily insured under state pension scheme – Riester pension plan – Company pension plan if the employer contributes more than 25% to the pension savings. – Rürup pension if you expect a lump sum amount liable for tax. |
Let’s understand how we picked the pension options in detail.
Statutory pension for foreigners in Germany
Every employee in Germany must contribute to the German state pension system. Thus, enrolling in the state pension system is not an option for employees.
Hence, making state pension insurance a default first way to save for retirement.
ETF savings plan
Historically, MSCI world ETF has returned an average 9% annually since 1975. Moreover, you are flexible. You can do whatever and whenever with the money.
But you must let the money in the stock market work for at least a decade or two. The longer you invest, the better it is.
Moreover, you can invest as low as 10€ in an ETF savings plan. Hence, investing in an ETF savings plan is a good way to secure income in old age for all income groups.
NOTE: Keeping the stock market volatility in mind, investing in the stock market as you near retirement is a risky option.
You can open a free depot account with Scalable Capital* and start investing.
Real estate investment
Buying a house in Germany is another good way to save for retirement.
You have the following options when you invest in real estate.
- Live in the house yourself. Hence, living rent-free after retirement
- Rent it out. Hence securing an income source.
- Sell it for a lump sum. Thus, you have a large amount to use at your leisure.
However, not everyone can afford to buy a property in Germany. Thus limiting the option to average and high earners.
But the good news is German banks offer 100% home financing to people with good credit. Hence, it makes the dream of becoming a homeowner in Germany reachable.
Company pension scheme
According to German law, employers must offer employees a company pension plan. Moreover, they must contribute at least 15% of the total contribution to the pension plan.
However, a company pension plan only makes sense if the employer contributes at least 25% or more. Otherwise, the company pension benefits are less than those from other retirement options.
You can learn more about it in our guide on company pension plans in Germany.
Riester pension for expats in Germany
The Riester pension is a great option for “low earners” and “average earners with children.” It is because of the state subsidy and child allowances you get under Riester insurance.
Here is a break-up of state allowances.
- 175 € basic allowance
- 300 € child allowance per child (born after 2008), 185 € child allowance per child (born before 2008)
- 200 € joining bonus for young professionals
- You can deduct up to 2100 € from taxes
But to be eligible for the Riester allowance, you must contribute at least 4% of your gross annual income.
Unfortunately, the Riester pension scheme is unattractive for high earners because of the tax cap and 4% rule.
The 4% rule increases the contribution amount for the high earners. And the tax cap eliminates the tax benefits. And the state allowances cannot match the return from ETFs tracking broad market indices.
You can compare the Riester pension offers on the comparison portal Check24*.
Rürup pension scheme for foreigners in Germany
Rürup can be another option to secure a lifelong pension. But it makes sense if you expect a lump sum due for taxation.
You can deduct up to 26,528 € of Rürup contributions from your taxes. Thus, the Rürup pension can save you a lot in taxes while securing a pension.
Of course, you pay taxes on your Rürup pension after retirement. However, low income usually lowers the tax rate after retirement.
You can compare different Rürup plans on the comparison portals Check24*.
Pension plans for self Employed
| Self-employed / Freelancer | 18-45 | 45-60 |
|---|---|---|
| High earner | – ETF savings plan – Real estate investment – Voluntarily insured under state pension scheme | – Real estate investment – Rürup pension if you expect a lump sum amount liable for tax. – Voluntarily insured under state pension scheme |
| Average earner | – ETF savings plan – Real estate investment – Voluntarily insured under state pension scheme | – Real estate investment – Rürup pension if you expect a lump sum amount liable for tax. – Voluntarily insured under state pension scheme |
| Low earner | – ETF savings plan – Voluntarily insured under state pension scheme | – Rürup pension if you expect a lump sum amount liable for tax. – Voluntarily insured under state pension scheme |
Self-employed individuals must take care of their retirement themselves. Some pension schemes, like the company pension plans and Riester pension schemes, are out of reach for freelancers.
But they have enough options to choose from. Let’s check how we picked the pension plans.
ETF savings plan
As we learned, ETFs offer high returns with high flexibility. Thus, investing in the stock market is also a no-brainer for self-employed.
NOTE: Keeping the stock market volatility in mind, investing in the stock market as you near retirement is a risky option.
You can open a free depot account with Scalable Capital* and start investing.
Real estate investment
Investing in real estate is a good way to save for retirement for both employed and self-employed.
- You can live in the house yourself and save on rent.
- You can rent it out and secure an income source.
- You can sell it and use the lump sum profit at your leisure.
However, not everyone can afford to buy a property in Germany. Thus limiting the option to average and high earners.
Statutory Pension Insurance in Germany
Self-employed and freelancers are not compulsorily insured under the state pension scheme. But you can voluntarily enroll in a state pension plan.
The pension benefits are the same for both employed and self-employed.
Rürup pension scheme in Germany
Another option for the self-employed to save for retirement is via Rürup pension insurance. But it makes sense if you expect a lump sum due for taxation.
As you know, you can deduct up to 26,528 € of Rürup contributions from your taxes. Thus, the Rürup pension can save you a lot in taxes while securing a lifelong pension.
Of course, you pay taxes on your Rürup pension after retirement. However, the tax rate is lower after retirement due to low income.
You can compare different Rürup plans on the comparison portals Check24*.
Conclusion
For most people, the following apply.
- Enroll in one of the pension plans offered in the German pension system.
- Invest in an ETF savings plan on top of it.
Use the tables above to reference and pick the pension plans that fit your needs. Always consult a fee-based advisor for a personalized recommendation.
