Participation in the German state pension scheme, or ‘Deutsche Rentenversicherung Bund’, is mandatory for all permanent employees in Germany, regardless of their nationality. However, most self-employed people can choose from a variety of supplementary pension schemes in Germany to put aside additional funds for their retirement.
Direktversicherung, literally ‘direct insurance’, involves a premium deducted from your monthly earnings. Even if you meet the full cost of the premium yourself, you can still claim up to 4% of the upper earnings threshold for the German state pension scheme – in 2016, the equivalent of €248 a month, or €2,976 a year – free from tax and social security contributions. However, it’s worth noting that the Federal Financial Supervisory Authority imposes strict regulations on direct insurance and direct insurance funding vehicles.
The Rürup pension, in German ‘Rüruprente’, is a supplementary pension scheme specifically designed for self-employed people in Germany. The scheme is named after German economist Hans-Adalbert Rürup and has been in existence since 2005. Contribution levels vary from provider to provider, but the main attraction of the Rürup pension scheme is the considerable tax advantages on offer. Under the scheme, the percentage of contributions that are tax deductible increases by 2% per year, up to a maximum of 100% in 2025. In 2016, 82% of contributions can be offset against tax.
The Riester pension, named after a former German Minister of Labour, is a state-sponsored scheme, which introduced a range of investment products, including annuities, endowments and savings plans, in 2002. Contribution levels, once again, vary from provider to provider, but providers must guarantee a minimum benefit and the German government offers subsidies to participants in the scheme, depending on their income and number of dependents.
The includes, but is by no means limited to, Direktversicherung, Riester and Rürup schemes. Each scheme has its own distinguishing features in terms of government subsidies, payment method, portability, tax liabilities and so on. Consequently, one supplementary pension scheme may prove more beneficial than another to a specific individual depending on their exact circumstances.