top of page
Private pension insurance:
Saving for a pleasant retirement
Kollegen bei der Arbeit

Private pension insurance is one of the most popular pension products among Germans. You pay into a contract with your private pension insurance and receive a lifelong pension at the end of the contract, usually at the start of your pension. Depending on your risk mentality, you decide which type of investment you want to use to build up your private pension insurance for your old age.

The most important thing about private pension insurance:


Private pension insurance guarantees a lifelong supplementary pension. Private pension insurance as a retirement provision in the form of an investment strategy can be chosen very flexibly - from conservative to return-oriented. It is possible to provide for surviving dependents with private pension insurance. The later pension, which is arranged through the pension insurance, is only taxable on the income share.

What is private pension insurance for retirement provision?

 

Anyone who only relies on the statutory pension will most likely have to reckon with a significant loss of income in their retirement provision when they start to retire. The pay-as-you-go state pension depends on future contributors. As fewer and fewer employees have to finance more pensioners, the level of pensions is falling. Private pension insurance is a form of funded pension provision. With private pension insurance, you save capital for many years, which will be paid out to you as an additional pension when you get older - guaranteed for life.

How does private pension insurance work?

 

You pay a fixed contribution into the private pension insurance for your future retirement provision either once or monthly. The insurer invests the capital for your pension in accordance with the agreed strategy and transfers you a monthly pension from the start of your pension. The amount of your pension depends on the amounts paid into the pension insurance and the interest earned. Up to this point, the concept of private pension insurance sounds no different than a savings plan. Insurance is created through the following services: Your additional pension in old age is guaranteed for life by private pension insurance. Using the premium refund option, your relatives will receive the capital they have saved and the income generated from it back if you die during the savings phase. It is possible to agree on a survivor's pension with private pension insurance.

At what age do you start receiving your private pension through pension insurance?

 

Ideally, the savings phase of your retirement provision ends in time for the start of your retirement. You will then receive both the statutory pension and the private pension. With private pension insurance, you are free to choose when you receive your pension. You may want to cut back on your career in your early 60s and fill the income gap through private pension insurance. Or do you already know that you want to work longer and therefore your retirement will start later? Then, for example, choose your 70th birthday as the start date for your pension insurance payments.

When should you take out a contract for private pension insurance?

 

Interest and compound interest have a major effect on your private pension insurance. Therefore, the longer the capital you pay into the pension insurance works for you, the higher the profit. For this reason, experts recommend opting for private pension insurance early on as a retirement provision. This means you can achieve a lot for your financial retirement with even small amounts. If you start pension provision at a later age, the monthly burden for a similar additional pension will be significantly higher.

How safe are private pension insurance policies? With this type of retirement planning, you decide for yourself how much security you want. You have the choice between the following variants:

Classic private

pension insurance

Fundbased private

pension insurance

Private pension insurance with surpluses in funds

(hybrid models)

  • offers the highest level of security

  • The contractual partner of the pension insurance invests contributions for the pension very conservatively and safely

  • Guaranteed minimum interest and minimum pension in old age

  • Participation in generated surpluses

  • Combined fund savings plan and lifelong pension payment opens up high return opportunities Losses are possible

  • Combines the advantages of classic and unit-linked private pension insurance

  • Security and return opportunities combined fundamentally conservative investment strategy

  • Minimum interest rate and minimum amount possible as an annuity

  • The amount of the minimum lifelong pension is determined by the pension insurance

  • Surpluses generated are invested in the capital market (e.g. funds, index participation). good chance of a significantly higher maximum amount for your pension in old age (this is not guaranteed)

  • particularly recommended for people who start planning for retirement late and need a high level of planning

  • Is suitable for anyone who gets started early (over the years, fluctuations in the stock markets usually even out)

  • Just as interesting for everyone who already has basic insurance such as a company pension plan

  • recommended for people who want to combine security and return opportunities

  • Well suited for an early to medium start to retirement planning

How is private pension insurance paid out?

 

A classic private pension insurance provides a monthly pension for life. If you decide on a contract with the right to choose a lump sum, you decide at the start of your pension whether you want to receive the saved amount with interest in one lump sum or as a pension.

How is private pension taxed?

The following rules apply to pension insurance contracts concluded since 2005:

 

Capital payout from private pension insurance

 

Withholding tax generally applies to payouts from new private pension insurance policies. If the private pension insurance contract has existed for at least 12 years and payment is made at the earliest at the age of 62 (until 2012: age 60), the half-income procedure can be applied for in the tax return. After that, half of the income is taxable at the personal rate.

​

Lifelong pension

 

The pension payment is taxed on the income share. However, the time at which the pension is drawn for the first time determines the share of income in the long term. The later the pension starts, the lower the income share will be. You can see this yield share in the following table:

Pension payments begin at the age of... years

Yield share in percent

60

61

62

63

64

65

66

67

22

22

21

60

20

19

18

18

60

17

Example:

For whom is the Riester pension worthwhile as a retirement provision?

 

This form of pension provision is only worthwhile if you are eligible. These are essentially the following groups:

 

  • employed employees and trainees

  • Self-employed persons subject to statutory pension insurance

  • People insured in the artists' social insurance fund

  • Participants in the Federal Voluntary Service

  • Students with mini-jobs subject to pension insurance

  • Officials, soldiers and judges

  • Recipients of unemployment benefit or citizen's benefit as well as sick benefit recipients

  • people with reduced earning capacity, those unable to work and those unable to work

“Riestern” via your spouse

 

In addition to those directly eligible, their spouses have access to the Riester pension. Of course, this regulation also applies to same-sex couples in registered civil partnerships or in marriage for everyone. The partner who is not entitled to the allowance must pay a basic contribution of 60 euros annually into the pension in order to receive the allowance.

Riester pension: Who benefits most from this form of retirement provision?

 

Thanks to the high allowances for children, the “Riestern” is particularly recommended for families and single parents. You have the opportunity to save a decent amount for your pension with small contributions. Single high earners also benefit from the Riester pension as a retirement provision. You have the option of deducting the maximum contribution of 2,100 euros as a tax deduction.

State the Riester pension in your tax return

​

You claim the contributions to the Riester pension as special expenses at the tax office. The entry belongs in Appendix AV. However, you will not receive the full tax advantage for your pension because the tax authorities reduce the savings by the allowances you have already received.

Riester pension: This is how the payment of retirement provision works

 

When you save for your Riester pension, you benefit from allowances and tax advantages. If the pension is paid out later, it must be taxed in full - but then only at the total tax rate applicable when the pension was withdrawn.

Would you like to find out more about the Riester pension or retirement planning in general?

 

Arrange an appointment to talk. An experienced MLP consultant will take time for you and work with you to determine whether the Riester pension or a private pension insurance, the basic pension or a company pension plan is recommended for you and your family.

bottom of page