Germany’s pension system consistently ranks highly among pension systems worldwide. This ranking is also steadily improving as Germany's government works to reform and streamline its pension system. This section looks at everything you need to know about retirement and pensions in Germany.
The German pension system combines a pay-as-you-go system, in which the working population pays for pensioners’ benefits, with supplementary pension plans.
Faced with an ageing population and an increasingly unwieldy pension bill, since 2002 the German federal government has enacted multiple reforms to the pension system in order to ensure its long-term efficiency and affordability. This includes gradually increasing the statutory retirement age and reducing maximum state pension payments.
Aware that the benefits offered by statutory pensions alone are not usually enough to guarantee a good income in retirement, the German government is increasingly providing financial support (mostly through tax benefits) to people who make alternative pension provision through company or private pensions.
In these supplementary schemes, individuals (either independently or through an occupational scheme) contribute to pension plans to “top up” what they receive from the state pension.
These different models make up the three pillars of the German pension system:
The first pillar of the German pension system is German pension insurance, which is the equivalent of state or public pensions in other countries and can be considered the “base layer” of the German pension system. The pension insurance scheme - participation in which is compulsory for all employees and some self-employed workers - operates on a pay-as-you-go basis and is funded through contributions from the working-age population. All contributors are guaranteed a pension after paying into the system for five years.
The second pillar of pensions in Germany is company pension schemes. Under a company pension scheme, either the employer or the employee (or both) contributes to a pension plan over a pre-agreed period of time in order to generate retirement savings.
The third and final pillar of the German pension system is private pension insurance, which is comprised of a mixture of government-backed schemes and insurance and investment products offered by independent providers. People who contribute to private pension plans generally benefit from tax advantages and - for some schemes - also receive government bonuses on their contributions.
The following companies can offer advice on starting a private German pension:
Rather than solely relying on just one pillar, many people choose to construct a more complex retirement plan containing elements from pillars one, two and three. A financial advisor in Germany can help you with this, and ensure you make the most of all of the incentives out there.
Contrary to popular belief, pensions are generally subject to income tax. Since 2005, Germany has broadly followed a "downstream taxation" policy, whereby contributions towards retirement provision are increasingly tax-free, while any pension income received later in life is subject to taxation. This is generally beneficial to workers, since it reduces your tax burden during your professional years. During retirement, your income is usually lower, and so is your tax burden.
How your pension income is treated for tax purposes in Germany depends on the year in which you retire, because the proportion of one's pension that is subject to taxation is gradually increasing.
If you began drawing your pension in December 2005, 50 percent of the gross pension is recognised as taxable income. Every year since then, the taxable proportion of the pension has risen by one percentage point; so those who retire in 2025 must pay taxes on 85 percent of their pension income. From 2040, pensions will be fully taxable for the first time.
Like many other countries, Germany has been gradually pushing back the statutory retirement age in an attempt to improve the pension system’s long-term sustainability.
Currently, the retirement age in Germany is 66 years and applies to people born in 1959. This will reach 67 by 2031.
Exceptions are made for anyone who has made pension contributions for 45 years, making it possible to retire at the age of 64 years and four months.
It is possible to retire early in Germany, as long as you have made contributions for at least 35 years. If you choose to take early retirement, the number of months you have left until you reach retirement age are deducted from your state pension entitlement. This is what is known as the age factor (Zugangsfaktor) and results in around a 3,6 percent reduction in your pension entitlement for each missing year.
If you wish, you can also choose to retire later; the positive impact on your age factor and ongoing contributions has the potential to substantially increase your pension benefits.
Depending on your individual contract with the provider, you might be able to cash in your company or private pension plan early (before you reach retirement age) although in some cases this means you lose out on tax advantages during the payout phase.
It is possible to receive German pension benefits if you move abroad. The amount you receive depends on how long you contributed for, what your salary was, and at what age you retire. If you only worked for a short time in Germany, you may also be entitled to a refund.
If you move abroad, you can have your statutory pension insurance contributions refunded if you have contributed for fewer than five years. Usually, you must have been abroad for more than 24 months since you last made pension contributions in Germany before a refund can be issued.
If you have contributed to your state pension for more than five years and move abroad, it is not possible to claim a refund. Instead, you will have to wait until statutory retirement age, when you can start claiming your German pension.
For more information on this, see the statutory pension insurance page.
If you move abroad, you will no longer contribute to the statutory pension through income tax and will therefore stop accruing pension points. It is not usually possible to continue contributing to company plans from abroad, but your private pension plan may allow you to continue your contract, depending on the provider. You can find more information about withdrawing company and private pension plans abroad on the respective pages above.
If you have been contributing to a German pension plan, either state, company, or private, it is important to inform your pension provider of your relocation as soon as possible. They will be able to advise you on which actions to take to prevent you from unnecessarily missing out on future entitlements.
Once you reach the German statutory retirement age, you can start claiming your state and private pensions from abroad. It is not usually possible to claim a company pension from abroad, but you should check with your employer. Depending on your provider, you may be able to receive your private pension abroad. As with any pension, the amount you receive will be determined by how long you contributed for.
Your state pension benefits will usually be paid into a German bank account for you to transfer to your foreign bank account. The cost of the transfer is covered by Deutsche Rentenversicherung. You can also have the German pension paid into your bank account if your bank is in one of the SEPA countries.
In certain cases, moving abroad may affect the amount of pension paid out to you. The amount of tax you pay on your pension depends on the arrangement Germany has with your country of residence. If you are moving away from Germany, it is best to contact the Deutsche Rentenversicherung as soon as possible to find out how this might affect future pension benefits.
It is common for expats to lose track of the pension rights they have accumulated when they move from country to country. Pension funds cannot be relied upon to be active in chasing you up, so it is important to stay on top of your German pension administration.
To find out what pension benefits you have accumulated in your various pension schemes, you can contact your scheme provider or check the annual statement they send to you (if applicable). Many pension providers also have online portals where you can check your funds and make changes. You can also check your salary slip to see what contributions you have made.
If you have worked in Germany for more than five years, when you reach retirement age you will receive a state pension (Pillar 1) proportional to the value of the contributions you made. Theoretically, you can receive this pension anywhere in the world, but your location may impact the payments you receive. If you leave Germany before you have made five years’ worth of contributions, you are entitled to a refund (if you move to a non-EU country).
You may also receive pension benefits from company pension funds (Pillar 2) and private pension plans (Pillar 3), depending on whether you have contributed to one or both of these. The amount you receive depends on how much you have contributed and for how long. It is usually possible to receive a private pension from abroad, but receiving or contributing to a company pension abroad depends on your individual employer.