fbpx

Tag: pension

Germany’s Pension Transfer Process: A Guide for Expats

Posted on by Clara

Germany’s pension system is known for its stability and reliability, but for expats moving to or from Germany, understanding how to transfer pensions can be a complex process. Learning about how to transfer or port your pension when necessary is key for long-term financial security. In this article, we will guide you through the Germany’s pension transfer process when changing jobs or moving to and from Germany, as well as pension portability across different countries.

Overview of the German Pension System 

The German pension system is divided into three pillars: the statutory pension (gesetzliche Rentenversicherung), occupational pensions (Betriebsrente), and private pension schemes. The statutory pension is mandatory for most employees and funded through social security contributions. Occupational pensions are offered by employers, and private pensions are voluntary retirement savings plans.

Expats working in Germany contribute to the same pension fund, which entitles them to a portion of retirement benefits once they reach retirement age, assuming they’ve contributed for at least five years. For this reason, it’s critical to understand the differences between the German system and your home country’s pension policies in order to complete your Germany’s pension transfer process, particularly how they affect your ability to transfer and retain benefits.

Germany's pension transfer process
Germany's pension transfer process

Germany’s Pension Transfer Process When Changing Jobs 

When you change jobs in Germany, your contributions to the statutory pension system are not lost. They remain in your pension account, and your new employer will continue to contribute on your behalf. You do not need to take any action to transfer these contributions, as they are automatically linked to your social security number.

If your previous employer offered an occupational pension, transferring these funds depends on the specific plan. Some occupational pensions allow for transfer to a new employer’s scheme, while others may require you to leave the funds with your previous employer or transfer them to a private pension scheme.

Portability of Pensions for Expats Moving to Germany 

For expats moving to Germany from another EU country, pensions are portable thanks to EU regulations. This means that your pension contributions from other EU countries can be combined with your German pension contributions when calculating your total pension benefits at retirement. The same applies to countries that have bilateral agreements with Germany, such as the United States, UK, and Australia.

If you are moving from a non-EU country that does not have a pension agreement with Germany, your pension contributions may not be transferable. In such cases, you may need to maintain separate pension accounts in each country or consider other financial planning options.

Transferring Pensions From Germany to Another Country

If you are planning to move out of Germany, you can transfer your pension contributions to the pension system of your new country of residence if there is an agreement in place. For EU countries, the process is straightforward and your German pension contributions will be recognized in your new country.

If you retire outside of Germany, you can still claim your German pension. Your pension will be paid into your bank account, regardless of where you live, although tax rules may differ depending on your country of residence. Be sure to check if your new country has a tax treaty with Germany to avoid double taxation.

Transferring Pensions When Moving to a Non-EU Country

If you’re moving from Germany to a non-EU country, your ability to transfer your pension will depend largely on whether there is a bilateral social security agreement between Germany and your destination country. These agreements help avoid the loss of pension rights and often prevent double taxation on pension benefits.

 

  • Check for bilateral agreements. Visit the German pension authority website to check if Germany has a social security agreement with your destination country.
  • Consult with experts. Pension specialists can provide tailored advice on how to handle your Germany’s pension transfer process when moving to a non-EU country.
  • Apply for transfer. Follow the formal process outlined by both the German pension authority and the pension system in your destination country.
In many cases, non-EU expats may need to withdraw their pension contributions upon leaving Germany, depending on the terms of any agreement or lack thereof.

Tax Implications of Germany’s Pension Transfer Process

Germany has specific tax rules regarding pensions, which apply both during contribution periods and when receiving pension payments. Pension contributions are typically tax-deductible, but pension payments are subject to income tax upon retirement.

When transferring pensions between countries, tax implications vary depending on whether the countries have a double taxation agreement (DTA). DTAs prevent you from being taxed twice on the same pension income. Be sure to consult a tax advisor to understand the tax consequences of your Germany’s pension transfer process.

Transferring Private and Occupational Pensions (Betriebsrente)

 If you have a private pension or an occupational pension from your employer, the process for transferring these funds can vary. Some private pensions are fully portable across jobs and countries, while others may require you to continue contributing to the same plan even after you’ve left the employer.

For occupational pensions, the rules depend on the specific scheme. In some cases, you can transfer your pension to your new employer’s plan, while in others, you may need to leave the funds with the previous employer and open a new plan with your current employer.

Key Steps in the Germany’s Pension Transfer Process for Expats 

Transferring your pension, whether within Germany or internationally, involves several steps. Here is a step-by-step guide that you will find useful through your Germany’s pension transfer process:

  • Contact your current and future employers to understand their pension schemes and the possibility of transferring funds. Gather the necessary documents, including your pension statements, employment contracts and identification. If transferring pensions internationally, contact the pension authorities in both countries to understand the process and any bilateral agreements. 
  • Consult a pension advisor or tax expert that works with expats to ensure you understand the tax implications of transferring your pension. Submit the required forms to the relevant pension authorities and keep copies of all correspondence for your records.

Understanding Pension Gaps and How to Avoid Them 

Pension gaps occur when you are not contributing to a pension system, either because of unemployment, gaps between jobs or moving between countries. These gaps can reduce the total amount of pension you receive at retirement. To avoid pension gaps throughout your Germany’s pension transfer process, ensure that you continue contributing to a pension system during periods of transition. This may involve making voluntary contributions to the statutory pension system in Germany or maintaining contributions to a private pension plan while you are between jobs or living abroad.

Can You Claim a Lump Sum for Pension Contributions? 

In some cases, expats may be eligible to claim a lump sum payment of their pension contributions if they leave Germany and do not plan to return. However, this is subject to strict rules and is generally only available for non-EU nationals from countries that do not have a pension agreement with Germany.

If you are eligible, you can request the lump sum payment after a waiting period of at least 24 months from the date you left Germany. This payment may be subject to tax in Germany, and you should consult a tax advisor to ensure compliance with local regulations.

 

We know that navigating Germany’s pension transfer process can be a complex task for expats, especially when dealing with different countries, regulations and pension schemes. However, understanding the essentials and reaching out to pension experts can ensure that your retirement savings stay intact and accessible. Feel free to contact us if you need further assistance. We now have a live chat feature available on every page! If you have any questions, just click to start a conversation, and our team will be happy to assist you shortly.

What our clients say about our services

GOWRI S.
GOWRI S.
Proven Expert Review
I have had an incredible experience with Dabar Reimer. She is very well experienced and was able to provide solutions for multiple scenarios. I am very thank full to her and highly recommend having a discussion with Dabar before choosing your next insurance policy.
Grant F.
Grant F.
Proven Expert Review
They have been so patient and thorough with helping during every step. I couldn’t imagine doing this on my own!
Chew Teck S.
Chew Teck S.
Proven Expert Review
My agent, Anja Lampert is super friendly and helpful throughout the entire process. Excellent service provided.
Anonymously
Anonymously
Proven Expert Review
The support I have received from Dabar was outstanding. She was always available to answer all my questions, and helped me out through the whole process. Thank you so much!
Nikos
Nikos
Proven Expert Review
I have appointed with Alex as the to-go person for all matters. Honestly he is providing the best service someone can get in Germany, solving problems literally in minutes! Highly recommend MW Expat Solution!
Anonymously
Anonymously
Proven Expert Review
It was a brilliant experience with MW expat. Right from filling up my details online, receiving a prompt call to book an appointment for detailed discussions of my needs to finally having a zoom call to talk to an advisor face to face was quick efficient, and re-assuring. I had the privilege to talk to Adriana Gonzalez, who was nothing short of brilliant. She was extremely composed, utterly professional, and very helpful.
Get a free Quote

Secure your future abroad with tailored insurance & pension plans

Get expert advice on the best solutions for expats – personalized to fit your unique needs. Start planning today!

Latest German Pension Changes: The New Reform

Posted on by Clara

Germany’s pension system is undergoing significant reforms in response to the challenges posed by an aging population and increasing economic pressures. As the number of retirees grows and the ratio of workers to pensioners decreases, the government has introduced new measures to ensure the sustainability of pension benefits. In this article, we’re going to explore the latest German pension changes, analyzing their implications for both current and future participants.

1. Recent German Pension Changes in Pension Laws

The New Sovereign Wealth Fund

One of the most notable developments in the recent German pension changes is the creation of a New Sovereign Wealth Fund. This initiative aims to relieve the long-term burden on contributors by building a permanent capital stock through the purchase of global capital assets. The fund will be financed by loans from the federal budget and transfers of government funds. As an initial step, the government plans to take on €12.5 billion in debt this year to establish the so-called Generational Capital, which will be invested in capital markets.

Over time, the fund’s value is expected to grow by 3% annually, aligned with projected wage growth, with €15 billion planned by 2028. By 2036, the goal is to accumulate a capital stock of €200 billion. The returns from these investments will enable annual distributions of €10 billion to the pension insurance scheme, thereby supporting the sustainability of pension payments under the new German pension system. To safeguard these distributions, a security buffer will be set up to protect the assets, particularly the loan amounts.

“It is long overdue that we use the opportunities of the capital markets for statutory pension insurance,” said Finance Minister Christian Lindner, emphasizing that this approach should have been adopted two decades ago.

Woman with a computer

Pension Contributions and Adjustments

The recent German pension changes also affect contribution rates, which have been stable at 18.6% since 2018. To address the growing financial strain on the pension system, the government has planned gradual increases in contributions. Starting in 2028, the rate will rise to 20%, with a further increase to 22.3% by 2035. These German pension reform is aimed at balancing the pension system’s finances while keeping the burden on current workers manageable. Despite these increases, the government assures that these contributions will remain stable until 2045.

Couple checking document

 

Pension Level Guarantee

In order to protect retirees from the potential erosion of their pension benefits, the government has introduced a “level protection clause” under the new German pension changes, which guarantees the pension level will not fall below 48% of the average wage until 2040. This provision is a critical component of the reform, as it aims to maintain the purchasing power of pensions in the face of economic fluctuations and demographic changes. By anchoring the pension level to wage trends, the government seeks to provide a reliable income for retirees, ensuring their financial security under the new German pension reform.

2. Implications for Current and Future Participants

Impact on Current Retirees

The recent German pension changes are designed to provide stability and security for current retirees. With the introduction of the New Sovereign Wealth Fund, the government plans to ensure that pensions remain closely tied to wage growth. This means that retirees can expect their pension payments to maintain purchasing power, even as economic conditions fluctuate. The establishment of a capital stock and the implementation of the level protection clause further safeguard the financial well-being of current retirees. These measures are designed to prevent any significant reduction in pension benefits, providing a sense of security for those who are already retired.

Implications for Future Retirees

For future retirees, the German pension reform carries both opportunities and challenges. On one hand, the New Sovereign Wealth Fund promises to stabilize the pension system, potentially leading to more predictable and secure retirement benefits. On the other hand, the planned increase in contribution rates could place a heavier financial burden on younger workers. Starting in 2028, contributions are set to rise from 18.6% to 20%, with further increases to 22.3% by 2035. This could impact disposable income for working individuals, particularly those in the early stages of their careers. Additionally, there is ongoing debate about whether the retirement age should be further increased beyond the planned rise to 67 by 2029, as a way to alleviate pressure on the pension system under the new German pension changes.

Couple looking at pension plans

Private vs. Public Pension Options

As the public pension system undergoes pension changes, the role of private pensions is becoming increasingly important. While the statutory pension remains the backbone of retirement security for most Germans, private pension plans offer an additional layer of financial protection. The government has not made it mandatory for all workers to contribute to private pension schemes, but there is growing discussion around this topic. Some political voices suggest that mandatory inclusion of all workers, including self-employed individuals and civil servants, could further strengthen the overall pension system. However, this proposal is met with resistance, particularly from those who prefer to rely on personal savings or alternative investment strategies. You can find further information on pension plans on this link.

3. The Financial and Social Implications of the New Pension reform

Economic Impact

The introduction of the New Sovereign Wealth Fund marks a significant shift in how Germany’s pension system is financed. By investing in global capital markets, the government aims to generate returns that will help sustain pension payments without overly burdening the federal budget. However, this approach comes with inherent risks, as market fluctuations could impact the fund’s performance. The decision to fund the Sovereign Wealth Fund through federal debt also raises concerns about long-term economic sustainability, particularly in an environment of rising interest rates and global economic uncertainty under these German pension changes.

Person on the debate table

Social Considerations

Socially, the German pension changes have sparked considerable debate. On one hand, the promise of stable pensions and the creation of a financial buffer for future retirees are seen as positive developments. On the other hand, the increasing reliance on capital market investments has raised questions about the equity of the pension system. Critics argue that those with higher incomes, who are better able to invest in private pension plans, may benefit disproportionately from the new system, while lower-income workers could face greater financial strain due to higher contribution rates. Additionally, the impact on future generations, who will bear the brunt of the increased contributions, is a major point of contention under these pension changes.

Public Reception and Political Reactions

The German pension changes have also elicited mixed reactions from the public and political leaders. While some view the New Sovereign Wealth Fund as a necessary step to ensure the long-term viability of the pension system, others are skeptical of its effectiveness. The ruling coalition has faced criticism from opposition parties, particularly the Christian Democrats (CDU), who argue that the plan does not go far enough in securing pension stability. They also express concerns about the risks associated with investing in the capital markets. Meanwhile, left-leaning politicians and populist parties have voiced concerns that the reforms could exacerbate income inequality and place an undue burden on future generations. You can read further news on this link.

Potential Revisions to the Current Plan

Given the criticisms and ongoing debate, it is likely that the current pension reform plan will undergo revisions before it is fully implemented (you can find more information here). Some lawmakers have called for more rigorous safeguards to protect the Sovereign Wealth Fund from market volatility, while others advocate for a more comprehensive approach that includes both public and private sector reforms. The government has expressed a willingness to consider adjustments, particularly in response to concerns about the long-term financial burden on younger generations. The final form of the legislation will likely reflect a compromise between the various political and social interests involved in shaping the German pension changes.

All in all, Germany’s recent pension reforms represent a bold attempt to address the pressing challenges of an aging population and a shrinking workforce. The introduction of the New Sovereign Wealth Fund, along with adjustments to contribution rates and the pension level guarantee, are central to the government’s strategy to ensure the system’s sustainability. As the legislation moves forward, it will be important to monitor how these German pension changes are implemented and whether they succeed in securing a stable and fair pension system for all Germans.

What our clients say about our services

GOWRI S.
GOWRI S.
Proven Expert Review
I have had an incredible experience with Dabar Reimer. She is very well experienced and was able to provide solutions for multiple scenarios. I am very thank full to her and highly recommend having a discussion with Dabar before choosing your next insurance policy.
Grant F.
Grant F.
Proven Expert Review
They have been so patient and thorough with helping during every step. I couldn’t imagine doing this on my own!
Chew Teck S.
Chew Teck S.
Proven Expert Review
My agent, Anja Lampert is super friendly and helpful throughout the entire process. Excellent service provided.
Anonymously
Anonymously
Proven Expert Review
The support I have received from Dabar was outstanding. She was always available to answer all my questions, and helped me out through the whole process. Thank you so much!
Nikos
Nikos
Proven Expert Review
I have appointed with Alex as the to-go person for all matters. Honestly he is providing the best service someone can get in Germany, solving problems literally in minutes! Highly recommend MW Expat Solution!
Anonymously
Anonymously
Proven Expert Review
It was a brilliant experience with MW expat. Right from filling up my details online, receiving a prompt call to book an appointment for detailed discussions of my needs to finally having a zoom call to talk to an advisor face to face was quick efficient, and re-assuring. I had the privilege to talk to Adriana Gonzalez, who was nothing short of brilliant. She was extremely composed, utterly professional, and very helpful.
Get a free Quote

Secure your future abroad with tailored insurance & pension plans

Get expert advice on the best solutions for expats – personalized to fit your unique needs. Start planning today!

Explaining bAV: How to Boost Your Retirement Savings

Posted on by MW Expat

Have you heard about the Betriebliche Altersvorsorge (bAV)? It’s a fancy term for company pension schemes in Germany, and they can really boost your retirement savings. But before you dive in, let’s take a closer look at what the bAV is all about, its perks, and the things you need to consider. Trust us, it’s worth understanding whether the bAV is the right choice for you.

Eligibility and Types of Employees

First things first, who can get in on the bAV action? Well, the good news is that all types of employees are eligible! Whether you’re a salaried employee, a trainee, a wage earner, a non-controlling share holder-manager of a GmBH, a member of a corporation’s board of directors, or an external person working exclusively for one company, the bAV is open to you. It’s not mandatory, but many folks choose it because of the awesome tax breaks and government subsidies it offers.

Man working on a computer
woman looking at options

Contribution Options and Tax Benefits

Okay, let’s talk money. With the bAV, you can ask your employer to convert a part of your salary into the pension scheme. This is called “deferred compensation.” Up to 8% of your gross salary (with a maximum annual limit of €7,008) can be directly contributed to your bAV. And guess what? The best part is that before taxes and social security contributions, 4% of your gross salary is automatically deducted. You can even choose to have an additional 4% deducted, which lowers your taxable income. That means more money in your pocket!

Retirement Benefit Options

When it’s time to enjoy the fruits of your labor, you’ve got choices. You can go for a full lump-sum payout, where you receive your entire saved retirement capital at once. Or, you can opt for a partial lump-sum payout, where you get a chunk (usually around 30%) upfront and the rest as a lifelong pension. Lastly, there’s the lifelong pension option. Depending on how much you’ve saved, you’ll receive a fixed monthly amount until the end of your days. Pretty neat, huh?

Portability and Investment Management

Now, here’s some good news for job hoppers. If you switch jobs, you can take your bAV savings with you. That means you don’t have to start from scratch when you join a new company. Your savings will keep growing, just like you! The bAV works similarly to private pension insurances, and your employer can choose an insurance provider to handle the investment side of things. They’ll make sure your money is in good hands and growing steadily.

Legislation and Employer Contributions

Since your employer saves on your social security contributions, they are required to transfer those savings over to you by contributing them to your bAV. So, you’re not alone in building your retirement fund — your employer’s got your back!

Age of Eligibility and State Pension Implications

Now, let’s talk about when you can start reaping the benefits. If you signed up for the bAV after 2012, the earliest age you can claim the benefits is 62. But don’t worry, you don’t have to rush. Most folks choose to claim their bAV benefits when they become eligible for the full German state pension. Just remember that when you lower your social security contributions through the bAV, your contribution to the mandatory state pension is also reduced. It means your government-run pension might be a bit lower, but hey, it’s a trade-off for the extra savings you’ve accumulated!

Conclusion

Phew! That was a lot to take in, but we hope you now have a clearer picture of the Betriebliche Altersvorsorge (bAV) and how it can help you boost your retirement savings. It’s all about understanding the eligibility criteria, contribution options, investment management, and the impact on your state pension. So, take your time, weigh the advantages and disadvantages, and decide if the bAV is the right choice for securing your financial future. Your retirement self will thank you later!