Feeling overwhelmed by the German pension system? You’re not alone! In this article, I’ll discuss everything you need to know about Rentenversicherung (pension insurance) in Germany so that you can feel at ease. In the blink of an eye and after loads of paperwork, you’ll be saving in no time!
Everything you need to know about Rentenversicherung in Germany
In Germany, and around the world, pension ages are decreasing and people from all generations are opting in for a variety of different pension options. Unlike in the past, employees now are not solely relying on their company’s benefits. Especially with the FIRE (financial independence, retire early) movement gaining traction amongst millennials, the way we think about pension is drastically changing (for the better).
In 2020, only 39% of the German population stated that they’re adding to their pension regularly. This guide is here to ensure you’re part of that minority that fully understands your pension options so you can move forward with confidence.
Furthermore, you’ll be happy to know that Germany has the 13th best pension system in the world and that they offer diverse plans to suit your needs. You can opt-in for a combination of pay-as-you-go and supplementary benefit plans. You can also utilise your company system or seek an alternative option on your own.
Important Vocabulary words related to Rentenversicherung
Before we get into the nitty-gritty, let’s review some important German vocabulary words related to Rentenversicherung:
- gesetzliche Rentenversicherung: Public or statutory pension insurance
- betriebliche Altersvorsorge (bAV): Company plans
- Deutsche Rentenversicherung Bund: German pension fund
- Grundrente: a basic pension plan
- Krankenversicherung der Rentner: Compulsory pension health insurance
- Deutsche Rentenversicherung: German pension authority
- Riester and Rürup: type of individual pension plans
Quick note: in US English, the equivalent for the term “pension” is “retirement”, in which both are more or less the same concept. For consistency and ease of understanding for German legal regulations, I will use the term “pension”.
Types of Rentenversicherung in Germany
There are 3 main pillars in the German pension system:
- Statutory (public) pension plans
- Additional private company pensions plans
- Individual investment pensions
Statutory (public) pension plans
The government-led pensions, or statutory pensions (gesetzliche Rentenversicherung), are mandatory for all employed workers. The percentage that is paid for gesetzliche Rentenversicherung is 18,6% (half paid by the individual, half paid by the employer). The individual’s half is paid from the annual gross salary, while the employer’s half is paid in addition to the annual gross salary.
If, for example, you decide to retire early, the amount you receive would be less, and of course the opposite happens if you retire later. The official pension age in Germany is 65 years old and if you contribute for 35 years, you start receiving your benefits once you reach the official pension age.
Additional private company pensions plans
Additional private company pensions plans or betriebliche Altersvorsorge (bAV) cover three-fifths of Germany’s population. It’s recommended to take part in this to enjoy tax breaks and grants. Like government pensions, private plans can be taken out starting at age 65. This age may gradually shift to 67 in the next decade or so.
Individual investment pensions
Finally, we have individual investment pensions. Some individual plans called Riester and Rürup have started to gain momentum, and are highly enticing for freelancers and those who are self-employed (more about this in another section).
Now let’s delve into who’s eligible.
Who is eligible for Rentenversicherung?
Everyone who works in Germany is entitled to Rentenversicherung (also those who are married to a person who works in Germany, even if they don’t work themselves). However, the conditions for how the funding applies depends on your working status, visa status, and familial status.
If you’ve worked as a full-time or part-time employee for at least 5 years in Germany, you can receive Rentenversicherung from the state. The amount you get will depend mostly on how long you’ve contributed towards this plan and also whether or not you’ve spent time raising children, taken time off to educate yourself, and if you’ve had to care for family members. Furthermore, some companies may offer additional private pension plans as an added benefit. Either way, as long as you’re an employee, paying into the gesetzliche Rentenversicherung fund is mandatory through taxes.
If you’re a freelancer in Germany, you can get gesetzliche Rentenversicherung if you choose to, but it’s not a legal requirement (although there are some exceptions in the case of visa requirements, but I won’t go down that rabbit hole here). The important thing to note here is that if you’re an expat, gesetzliche Rentenversicherung is not the greatest idea if you want flexible options for later on. The alternative in this case is to opt-in to a private pension fund in which you set the standards for how much you pay versus how much you get back.
Additionally, the Qualified Recognised Overseas Pension Scheme allows UK expats to transfer their pensions early if they’re moving outside of Germany. If you’re an expat who worked for at least 5 years in Germany, you can withdraw your fund if you move to a different country within the EU. However, with the advent of Brexit, this is likely to change, as the UK is no longer part of the EU, so speak with your HR department at your company to find out the exact details about this.
How do I apply for Rentenversicherung?
If you’re an employee, you pay into the system automatically through taxes. However, the provider you choose and whether or not you’d like to supplement your plan with individualised private pension options is fully up to you.
To apply for individual plans or to change a current plan, you should visit the Deutsche Rentenversicherung (German pension authority).
If you’re a freelancer and would like to set up a private pension fund, you can speak directly with the pension insurance provider for some options, which often takes place through your health insurance (Krankenversicherung).
Are there special Rentenversicherung plans for freelancers?
The Riester and Rürup were designed with high-income earners, freelancers, and self-employed individuals in mind. If you’re a freelancer in Germany, plan ahead and decide whether or not you’ll be retiring there before making any decisions about your Rentenversicherung.
To further illustrate these plans, the Rürup scheme is highly attractive because it’s tax-privileged. This plan is also better for freelancers or self-employed individuals who are not enrolled in a statutory pension plan, because you can make one-off payments and also modify the amount you contribute.
To reap the benefits of the Riester, you’ll want to put in at least 4% of your income. The government will match what you put in with an additional 175 euros. If you have kids after 2008, you can receive up to EUR 300 per child. This plan is meant to close the gap and supplement savings from the public system.
Can I get my Rentenversicherung payments early?
The official age to start receiving your pension benefits in Germany is 65. However, you can claim yours early, but remember that you’ll receive a smaller amount. If you’d like to consider this option and are unsure about how to proceed, check with your pension insurance provider or HR department (if you’re an employee).
With all this in mind, you can move forward knowing there are options out there to fit your unique needs! Yay Germany!