Which retirement provision suits me?

If you want to be financially secure in old age, you should not rely solely on the state pension. This is rarely sufficient to live as you did when you were working. If you don’t want to fall into old-age poverty, you should definitely make private provision. We explain the options available to you.

The pension model in Germany

For the majority of Germans, the statutory pension is the basis for financing their retirement. In most cases, however, these pension payments are not enough to continue living the way they did during their working years. But how can that be? After all, we pay into the statutory pension every month.

The German pension model is based on the so-called intergenerational contract. You and all other employees pay regular contributions into the statutory pension. However, these are not set aside for your own pension, but are used to make payments to current pensioners.

In other words, the young each finance the pensions of the old. However, since demographic change means that there are fewer and fewer young people to finance current pensions, less and less is reaching the elderly.


The current pension level is

The so-called standard pension (also: benchmark pension) is currently around 48 percent of average net income. This means that an employee who has paid into the pension fund for at least 45 years can expect his or her pension to amount to about 48 percent of his or her last salary.

Not much, is it? Can you imagine living on just under half of your current salary? Starting in 2030, the standard pension will be cut even further — to 44 percent.

Let the state support you

The state has also recognized that the statutory pension will not be enough. That’s why it promotes old-age provision with tax benefits and allowances. These relate to selected forms of old-age provision: the company pension, capital-forming benefits and the Riester pension.

Company pension scheme

The company pension plan (also bAV) is an additional pension that you can build up through your employer. Every employer is required by law to offer you a company pension plan. However, it is up to the employer to decide how to structure it.

For example, you can pay a portion of your gross salary directly into the company pension plan — this also saves you monthly taxes and social security contributions. Another option is for your employer to finance the occupational pension plan alone. A mixed form is also conceivable. In this case, you and your employer pay into a pension plan, for example.

It is up to your company to decide which form of pension plan it offers. If you pay something from your salary, you decide on the amount of the contribution.

You can have the saved capital paid out in one lump sum at the start of payment or as a monthly pension for the rest of your life.

Capital-forming benefits

Capital-forming benefits (VL or VwL) are actually intended as a way of building up assets, but can also be used for the occupational pension scheme.

With capital-forming benefits, your employer subsidizes your own savings efforts. These can be new or existing building society savings contracts, bank savings or equity fund savings plans. The important thing is that your contract is suitable for VL savings.

Here’s how it works: You sign a VL contract and submit confirmation of this to your employer. The employer then pays a fixed monthly amount into the contract.

In principle, up to forty euros per month is possible over six years. Normally, you will receive the sum saved up to that point after seven years. However, if you use the VL for the occupational pension scheme, the sum saved will not be paid out until the start of the pension.

Note: Your employer is not obliged to offer capital-forming benefits. It is therefore best to ask your employer whether and to what extent a subsidy is possible.

Riester pension

If you do not yet have a Riester pension, it may be worthwhile to take out one for the remaining years until you retire. The state will support you with allowances and tax relief.

The personal allowance is up to 175 euros per year. If there are children in the house, the state adds up to 300 euros. At the end of the year, you can claim your contributions against tax as part of your pension expenses.

Anyone who pays into the statutory pension fund can make pension contributions. Once you reach retirement age, you will receive a monthly Riester pension for life. This gives you an additional income on top of your statutory pension and gives you more scope for the important things in your life.

It’s best to discuss with our advisors whether a traditional Riester pension or a «Wohn-Riester» pension is right for you.

Rürup pension

As a self-employed person or freelancer, you are usually not entitled to a statutory pension. You often have to put money aside yourself to make ends meet in retirement. Here, the Rürup pension (also basic pension) can be an important building block.

Since as a self-employed person you often do not have a regular income, the Rürup pension remains as flexible as you need it to be. You determine the contribution amount, the term and the sum insured individually.

The Rürup pension is offered as a classic or unit-linked pension insurance or life insurance.

At the end of the year, you deduct your contributions from your taxes. Shortly before retirement, you can even pay tax-privileged lump sums into the Rürup pension. Once you have completed your working life, you will receive a monthly payout for life.

Private provision

Most people underestimate how big your pension gap will be — that is, the difference between their personal financial needs in retirement and the benefits they can actually expect to receive. However, the above figures are a fact. For this reason, it makes sense to make private provisions for old age.

According to a report from early 2019, significantly more pensioners are already affected by poverty in old age than previously assumed. Almost one in five is considered at risk of poverty and lives on less than 999 euros a month. Single parents, families with many children and the unemployed are at above-average risk.

Civey survey: How much money do you set aside for retirement provision?

Life insurance

A life insurance policy is basically a savings contract into which you pay a fixed amount each month, thus building up a financial cushion over the years.

With term life insurance, you receive what is known as death protection. This means that if you die within the agreed insurance period, the insurer pays your surviving dependents the sum insured agreed in the contract.

With endowment insurance, there is also protection for your partner or children. In addition, however, you save capital for your pension, which the insurance company also invests profitably for you.

If you want to be on the safe side, choose the classic life insurance. Here you receive a secure interest rate. Fund-linked life insurance policies offer higher earnings potential.

Annuity insurance

With classic annuity insurance (also: classic pension), you pay a fixed amount to the insurance company each month. The insurance company invests the money for you and pays interest at an agreed rate. If the insurance company does well, additional surpluses are possible, in which you will participate.

The classic annuity insurance is suitable for you if security is a concern for you. Although interest rates are not very high at present, you receive a guaranteed pension.

With unit-linked annuity insurance, your insurance company invests in various funds. Unlike traditional annuities, this increases your chances of a return. Contrary to what you may think, these funds are not all high-risk. How safe a unit-linked annuity is depends largely on the choice of funds.

Shares and funds

If you’re thinking about saving today, you can’t avoid mutual funds. Especially saving for retirement hardly works without a block of shares or funds if you are interested in a good return. In the long term, they are the way with the highest returns and should therefore make up part of your private pension provision. In the past, shares with a long investment horizon have yielded an average return of at least 4 percent — usually even more.

It is possible to invest in practically all funds from as little as 25 euros a month. So even for younger people who are at the beginning of their professional career and do not yet earn that much, there are entry-level opportunities.

What type of pension are you?

Would you like to know what the right retirement provision is for you? Then take a look at our seven different retirement plan types.

The beginners

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Fresh out of school or just graduated from university? Only very few people have already thought about their retirement provision at this point. After all, it’s still a long time before retirement. But as the saying goes? The early bird catches the worm. The best thing to do is to start now!

Our tips:

  1. Your pension plan can be as flexible as you are. Start with Fund savings and choose the amount yourself. You can change or suspend the savings rate at any time. Just as you like. Another plus: There’s no minimum term, so you can always opt out.
  2. Starting your career also means that you have an employer who can contribute to your capital accumulation with capital-forming benefits. This works both with fund savings and with building savings. An additional plus: The state may also participate with an employee allowance to your savings plans.
  3. With Riester savings, you also receive a subsidy from the state.

The family

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Congratulations on your new baby! It’s clear that you have a lot on your plate with a baby. That leaves little time for topics like private retirement planning. However, there is one thing you should not forget: One or more children mean additional financial support for your pension.

With Riester savings, there is a child allowance in addition to the basic allowance. This means you receive a fixed amount per child each year. For children born before 2008, this is 185 euros. For all younger ones, even 300 euros.

The brave

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When it comes to returns, are you not afraid of risk? Then we’ll tell you something: With this attitude, you belong to a very small group. Only one percent of Germans are willing to use high-risk investments. While the prospect of profit is relatively great, it is also just as uncertain. But it is not unusual for the courageous to be rewarded.

Invest in shares. Especially if you hold them for the long term, the likelihood that they will yield profits increases. Anyone who has invested their money in the Dax over a ten-year period since 1965 has generated a positive return in 47 out of 50 cases.

The cautious

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For 57 percent of Germans, security is the top priority when it comes to their investments. Even the fact that safe forms of investment are currently yielding little due to the low-interest phase has done little to change this.

It’s true: the good old savings book is better than nothing at all. However, a Riester savings plan is often even more profitable. Here, you don’t have to worry about your investments and you get annual allowances from the state on top of that.

The builder

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How does that sound: a small house, a fine garden with a vegetable patch, your own parking space in front of the house … Well, do your eyes light up? Many people have the dream of owning their own property. Now the time has come.

It’s not without reason that owner-occupied property is now the number one retirement provision for the majority of Germans. Especially in times when other forms of investment hardly yield any interest, owning your own property is a good idea. If you build today, you won’t have to pay rent tomorrow and you’ll have more money for life. So what are you waiting for? Create, create, build houses.

The high earners

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Do you earn well? Then you’re probably already putting aside a euro or two for your private pension. And that’s exactly the right thing to do.

Money for pension insurance, a Riester savings plan or shares are a good start. But how about real estate as an investment? Interest rates are currently low — a good time to take out a loan.

The low-income

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Low-income earners should also think about their old-age provision. It’s certainly not easy when there’s not much money to live on anyway.

We advise you to make Riester savings. Here you save money yourself every month and receive an annual allowance of up to 175 euros from the state. If you have children, Riester savings are even more worthwhile because of the child allowance: if you have children born before 2008, you receive an allowance of 185 euros. For families with children born after 2008, even 300 euros per year are paid into the Riester contract.

Employed in the municipal public service

A smiling blonde woman sitting at a desk

You work in the municipal public service? Respect! That makes you one of the 2.4 million people in Germany who have rendered outstanding services to the community. However, many don’t know that despite coverage by the supplementary pension fund, there is a risk of a pension gap. The good news: With the savings bank municipal pension, you can additionally secure your standard of living in old age through a company pension plan — and save taxes and social security contributions in the process. Simply speak to your advisor at your savings bank or find out more from your public insurer partner.

Our tips:

  1. Depending on the arrangement, considerable sums can be saved on taxes and social security contributions. A lower net expense is offset by a higher savings component.
  2. In the case of direct insurance or a pension fund, up to eight percent of the contribution assessment ceiling for statutory pension insurance can be paid into the company pension scheme tax-free each year. If a support fund is used, it is even possible to convert any amount of remuneration with tax effect. In any case, up to four percent of the deferred compensation amount remains tax-free.
  3. Capital-forming benefits can also be contributed. It becomes even more attractive if your employer participates.

Do you still have questions?

Are you still at a loss? Don’t worry: old-age provision is not a closed book. We will be happy to advise you personally and discuss any remaining questions with you. Together, we’ll find out which retirement provision is best for you.