MW Expat Solution Services GmbH
                                   German insurances explained so that you understand


Pension Savings

The one form of insurance that we all want to use at some point and most likely will is our pension schemes. In Germany there is a statutory pension scheme in place (Gesetzliche Rentenversicherung 'GRV') and with a few exceptions, anybody who earns a living in Germany, has to pay into it. The contributions are charged at a rate of 18,6% of our salary; if you are employed your employer will pay half. The population in Germany is getting ever older with the baby boom generation after the war reaching retirement age. This means that there are fewer people paying into the system but an increasing number of pensioners. This demographic development has led to a downward spiral in pension levels. In the year 2000 pension levels were at 52.9% of our last income, in the year 2020 they will lie at 46% and at 43% in the year 2030. The Government has pledged that it will not fall under 43%, but that is still a while away and only time will tell if they can uphold this pledge. The Government has recognised the need for people to arrange private provisions if old age poverty is to be avoided. For this reason they have created three private schemes that they subsidise. There are also private solutions offered by banks and insurance companies.
Please find below an overview of some of the options available to you - these are, however, very important and complicated decisions and should be discussed in more detail during a personal consultation.
 

1. State Subsidised Schemes
Riester Rente - the Government pays a yearly subsidy of €175 per person and €300 for each child (€185 for children born before 2008). You have to be paying contributions into the statutory pension scheme to be
eligible for Riester Rente. To get the full subsidy you have to pay 4% of your gross earnings into the scheme up to a maximum of €2,100/year. The premiums can be offset against tax and are therefore taxed when paying out; this has the advantage that taxes are normally far lower as a pensioner because the income is not
so high. The earliest pay out opportunity is at age 63. It will pay out as a lifelong pension, but you can draw up to 30% of the saved amount as a capital payment. Most of the tariffs offered by the different insurance companies are fund savings based, offering a higher return in the current low interest market. It offers the added bonus that all the premiums that are paid in are guaranteed, meaning that if the fund loses money, you do not. More info


Basis Rente - this scheme is designed for the self-employed to benefit from, but it is also attractive to people
on a higher salary. You can pay up to €24,305/year into the scheme if you are single or up to €48,610 if you are married. The premiums can be offset against tax. You have the option of paying low monthly premiums and then towards the end of the year, after seeing how much you will earn, paying a lump sum to save paying taxes. It pays out as a lifelong pension and the earliest that the pension can be drawn is age 63. The pension will be liable for tax at the rate you pay as a pensioner. There is no option of a capital payment. More Info


Betriebliche Altersvorsorge (BAV) - if you wish, your employer is obliged by law to convert 8% of your salary (up to a maximum of €6,240/year) into a pension provision payment. 4% are taken away from your
salary before you pay taxes and social contributions and a possible further 4% before you pay taxes, which effectively lowers your income and reduces the amount of tax and contributions you have to pay. As above, the pension is liable for tax when it pays out, can only be drawn as a lifelong pension and from age 63.


2. Private Pension Schemes                                                                                                                                        Almost every bank and insurance company offer a private pension scheme (Private Rentenversicherung). These schemes have the advantage of being very flexible. In the past they used to offer guaranteed returns of 4% and over - this is no longer possible due to the low interest rates available on the market today, so most are now fund based savings. If all goes well (and it has done until now), fund-based savings offer you a good return on your money, normally well over 3%. There is however no guarantee that this will be the case and it is also possible, although very unlikely, that you can lose money. Shares fluctuate but viewed over long periods of time do not lose money. It is important for the scheme to run for a long time and then before it reaches maturity (when the shares are at a high) to change to a very low risk portfolio strategy. This is managed for you by the bank or insurance company. Should you feel that is still too much of a high risk, some insurance companies will still offer you a scheme with guaranteed interest, which presently lies at 0.9%/ year. However, because the insurance companies invest the money they have, they also offer performance related profit participation, meaning that the overall return at the moment is around 2.25%/year (this varies slightly between the different companies depending on how they perform).

You can also choose between full or part capital payment or a lifelong pension when it reaches maturity. It is possible to draw money from it (a minimum balance of €2,500 usually has to remain) at any time should you need to do so. It is also possible to cancel the scheme before it reaches maturity and you will receive the amount that has been saved up and until then. This, however, has tax drawbacks.
As long as the scheme has run for at least 12 years and you do not draw on it until your 62nd birthday, you pay greatly reduced taxes on the profits when it pays out. The pension pays out for as long as you live. Should you die at an early age, the payout is guaranteed for a period of up to 18 years and will be paid to a person of your choice. More Info


Should you be interested in more detailed information regarding your possible pension solution options, please do not hesitate to contact us at any time for a free and unconditional consultation with a consultant based near you.