How to boost your German pension with voluntary contributions
More and more expats are nowadays supplementing their retirement savings by making voluntary contributions to German pension insurance, even after they have left the country. In this article, Fundsback explains how voluntary pension contributions work in Germany, and how you can use them to increase your retirement pension.
It’s a well known fact that Germany offers excellent social security via its welfare state principle. A constituent part of this system is German pension insurance, which all employees (including expats) automatically contribute to in the form of a gross salary deduction.
In many cases, expats do not even notice these contributions disappearing from their salary each month. The deduction is often hidden in your payslip as an “RV-Beitrag'' or a “Rentenversicherungsbeitrag”. Over time, these automatic contributions build up to create an old age pension entitlement, which can be withdrawn from almost anywhere in the world. The exact amount you can eventually claim depends on your income.
But - here’s the trick - more and more expats are nowadays paying voluntary contributions into the German pension insurance scheme, even after they return to their home countries. This allows them to retain and even increase their German pension entitlement - a potentially lucrative investment. Here’s how it works.
Making voluntary German pension contributions from abroad
Making voluntary contributions from abroad allows you to increase your pension benefit when you eventually reach retirement age. For example, someone who makes the maximum contribution of 1.280 euros per month for a whole year will later receive an additional 70 euros per month in their pension, for the duration of their retirement. The amortisation ("payback") period is thus approximately 18 years - making the possibility one worth considering.
The idea becomes even more attractive when you consider the following: in Germany, old-age pensions are regularly increased. In 2019, the increase was over 3 percent; in 2020, it was approximately 3,5 percent.
Expats who have paid voluntary contributions will of course also benefit from these pension increases - now and in the future. So, even if you will not reach retirement age for another 10 or even 20 years, you will still benefit from pension increases in the coming years.
How does voluntary pension insurance work?
To be able to make voluntary pension contributions, you simply have to submit an application to the German Pension Insurance (Deutsche Rentenversicherung). These applications are usually approved, especially if you are an EU citizen or a non-European who has already been contributing for more than 60 months.
Once you have been approved, you can pay your voluntary monthly contributions to the German Pension Insurance fund via a direct debit (Lastschrifteinzug) or a simple bank transfer.
What if I am not allowed to pay voluntary contributions?
It's important to note that the option of making voluntary contributions is not open to everybody. Only EU citizens and citizens of so-called "Agreement States" are entitled to make voluntary contributions to German Pension Insurance. These Treaty States include: Australia, Brazil, Canada, Chile, India, Israel, Japan, Morocco, Philippines, South Korea, Moldova, Macedonia, Tunisia, Uruguay and the USA. Other non-Europeans cannot make voluntary contributions.
Even if you are a citizen of an Agreement State, you may not be entitled to make voluntary contributions if you have not yet been contributing to your German pension for 60 months or more.
Can I get my pension contributions back?
Even if you cannot make contributions from abroad, your money is not lost. The contributions that you have paid into the German pension insurance fund from your gross salary can be refunded.
Unfortunately, the procedure for having your contributions reimbursed is rather complicated. There are a number of requirements that must be met. First of all, your last salary payment in Germany must have been at least 24 months ago.
In the meantime, you must not have received any other social security benefits, such as unemployment benefit, from the German state. You may not have dual citizenship with an EU country. In addition, if you are a citizen of a Treaty State, there are further hurdles that must be overcome, which are regulated in each country’s social security agreements.
Have you been working in Germany? Find out what your pension contributions are worth with Fundsback’s Pensioncheck service - or use their Pension Booster service to discover if you could boost your retirement pension through voluntary contributions.
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