Contributions are also classified as special expenses for tax purposes, making them tax deductible in the annual income tax return (up to 2.100 euros per year). If you start contributing before the age of 25, you also receive a special one-off bonus of 200 euros.
Riester pension benefits
You can begin withdrawing your pension payments (subject to income tax) at age 60. If you want to withdraw the money before that, you can get back your contributions plus their growth, but all the government bonuses you received will be deducted.
All contributions to the plan are fully protected by the law from legal claims and are guaranteed to you upon retirement. If you choose, you can also take a lump sum payout, of a maximum of 30% of the capital accrued.
Your Riester pension benefits are taxed at your regular personal income tax rate.
Under the Riester homeownership pension scheme, your savings and government bonuses can also be put towards a mortgage, helping savers to pay off their mortgages before they retire.
Riester pensions have received a fair amount of criticism since being introduced and will likely soon be reformed as part of a government shakeup of private pension provision in Germany.
Moving abroad with a Riester pension
One of the major disadvantages of the Riester pension - especially when it comes to Riester pensions for international residents of Germany - is that it can cause a bit of a headache should you later choose to move away from Germany and retire abroad.
Ultimately, things will depend on the contract you have with your individual provider, but in general the following applies:
- Once you move abroad, you will no longer be eligible to receive any funding into your Riester plan.
- If you move to another EU country or within the European Economic Area (EEA), any funding or bonuses you have already received from the German government do not have to be repaid.
- If you move outside the EU or EEA, you not only lose your right to future bonuses, but also have to pay back the bonuses that you have already received (unless you plan to return to Germany at a later date).
If you move from Germany to a country outside the EU or EEA and have paid into a Riester pension, you must inform your provider as soon as possible.
Rürup Pension (Rürup-Rente)
The Rürup pension plan was introduced in 2005 for anyone who does not contribute to state pensions and is not eligible for a Riester pension, usually freelancers and business owners. Developed by economist Bernd Rürup, the plan (also known as Basis-Rente or basic pension) is intended to provide self-starters with at least basic provision in old age. The state supports the scheme through tax benefits.
Who is eligible for the Rürup pension?
In theory, anyone can contribute to a Rürup plan. However, it was designed especially with the following groups in mind:
- Self-employed workers
- Freelancers
- High-income earners
Contributions to Rürup pension
Generally, individuals decide how much they wish to contribute to the plan. Although the government does not pay out bonuses, they promote the Rürup plan through tax incentives. Contributions to the scheme (up to a maximum of 29.344 euros per year in 2025) qualify as special expenses for tax purposes. As of 2024, 100% of contributions are tax deductible.
Rürup pension benefits
You can only start to withdraw your Rürup pension once you reach the age of 62. Contributors are guaranteed a life-long pension; the benefit payments cannot be reduced even if you are, for example, collecting unemployment benefits. The money invested in Rürup schemes is also legally protected from legal claims or attachments.
However, they cannot normally be passed on or inherited in the case of your death, although some plans let you nominate a legal partner who will receive your pension for a set period of time after you die. It is also only possible to receive the Rürup pension as a lifelong pension benefit; you cannot receive a one-off lump sum.
Once you retire and start collecting benefit payments, they are taxed. The taxable share depends on the year in which you retire: if you retire in 2025, 85% of your pension is taxable. This will rise by 1 percentage point each year to reach 100% in 2040.
Moving abroad with a Rürup pension
Unlike the Riester pension, moving abroad with a Rürup pension is not so complicated. In general, it is possible to withdraw your Rürup pension from abroad, and have it taxed in your new country of residence, rather than in Germany. You’ll need to check whether your new country of residence has a double taxation agreement with Germany to ensure that your pension is not taxed twice.
If you do move away, it’s wise to consult a tax advisor to clarify what the implications would be for your Rürup pension.
Private pension insurance in Germany
The final option when it comes to private pensions in Germany is opting for a private pension insurance plan. These are offered by a growing number of providers in Germany, including many that cater to the expat market, but unlike the Riester and Rürup pensions they are not subsidised directly by the government (although they do come with some tax advantages).
One major advantage of private pension schemes is that they are particularly flexible, allowing you a greater amount of control over where you invest your money. You also have the option to withdraw your money before you reach retirement age, and name someone to inherit your pension, should you pass away.
Contributions to private pension insurance
Contributions to private pension insurance are agreed at the start of the contract term. Essentially, you agree with a provider to pay a minimum contribution every month or year, and in exchange get a guaranteed minimum pension when you retire, plus any possible gains made on your contributions.
There are no tax benefits for these kinds of private pension schemes during the pay-in phase, so you can’t deduct your contributions on your annual tax return to make savings.
However, there are some other tax benefits from which you can benefit. Since you are investing through a private pension contract, you do not incur capital gains tax or dividend income tax while you are investing, as you do not hold the investment directly. This allows you to switch your investments freely, selling and reinvesting them without having to pay taxes. This is commonly known as a “tax wrapper”.
Private pension insurance payouts
When your contract matures on the pre-agreed date, you will receive your money either as a monthly pension benefit, a lump sum, or a mixture of the two.
There are some tax advantages in the pay-out phase, depending on how you choose to receive your pension.
If your pension is paid out as a monthly benefit, then only a portion of it is subject to taxation. The exact portion depends on the age at which you retire; the later you retire, the less of your pension is subject to taxation. So, for example, someone who retires at 62 would see 21% of their pension benefit subject to taxation, whereas someone who retired at 72 would only pay taxes on 13% of their benefit.
If you receive your private pension as a lump sum, it is only taxed at the moment you withdraw it. You pay tax on half of your capital gain. You also have the option to spread your lump sum into multiple payouts, thereby avoiding higher income tax rates.
Note that you can only take advantage of these tax benefits if you are aged 62 or older when you cash in your pension, and you have held the contract for at least 12 years.
Can I take my private pension insurance plan abroad?
One of the main benefits of private pension insurance plans is how flexible they are. Many providers will allow you to continue contributing to your policy from abroad. You should also have the option to suspend payments and let the interest grow on your capital, or to cash the policy in right away and receive a lump-sum payout.
Cost of private pensions in Germany
Most private pension schemes charge their customers a small annual fee to manage their assets. This is usually expressed as a percentage charge, and includes upfront fees, fees on deposits, and annual fees.
When comparing different offers from different companies, you should carefully consider their fees and weigh this up against the expected performance. Over the long run, even a small difference could make a huge difference in how much of a payout you get.
Choosing the right private pension plan in Germany
As the above makes clear, there is a lot to consider when choosing a private pension plan in Germany, and so to make sure you make the best choice for your personal situation, it’s worth consulting with a financial advisor experienced in retirement planning.