Boosting your retirement benefits in Germany

It is wise when you think out of the box and start saving for your retirement as early as now. Retirement savings can save you from an embarrassing situation later on in life when you retire and cannot even afford a decent housing despite leading a lavish lifestyle on the hay days. Moreover, when you start saving from now, you’ll likely cut on the costs of future savings when you are of mature age and prone to unfortunate incidences such as untimely demise. Remember, even most insurance will charger lower premiums for a young employee who still has the energy and a lot of potential to work.

As you work and advance in your career in Germany, it is important that you start saving as part of your retirement plan. One of the ways that you can do that is by getting a pension plan while in Germany, especially if you’ve also assumed the citizenship. Pension plans that can boost your retirement benefits include the following:

• Statutory pension

Before we tell you what statutory pension is, it is important that you know Germany uses three-pillar pension systems that can be adopted by any gainfully employed citizen. They include the mandatory state pension, occupational pension and private pension. Therefore statutory pillar is the first-pillar mandatory pension that covers all employees. Both the employers and employees finance towards statutory pension. Just like any other schemes, the pension entitlement is calculated on the basis of the level of income, contribution years and the retirement age. You don’t have to worry about this type of pension because it will obviously be mandatory if you are gainfully employed.

• Occupational pension

Occasional pension is the second pillar of the whole pension system. About 20 million employees are subscribed to occupational pension in German, but that is actually less than half of the total employees. The occupational pension may either be in the form of a direct pension promise or an external pension provider. For the first option, just as the name suggests the employers promises to pay a certain amount of money to the employee once they retire. It is common to see a company setting up a Contractual Trust Agreement (CAT) that states when the money will be paid and the conditions for the payment. 

In the second option, the employer may decide to take out a whole life insurance on behalf of the employee from an external source, mostly private insurance firms. In that instance, the employer ill contractually be entitled to the policy. This is the most common form of external pension insurance. Other providers include Pensionskasse, Pension Fund, and Support Fund.

• Private pensions

Finally, just like in most countries, there is also the private sector which offers personal pension insurance scheme for employees. Currently, the biggest private pension plans in Germany include the Riester and Rürup plans, which enjoy the government’s subsidy. Moreover, they have a variety of pension schemes tailored to meet people from all walks of life. Riester Pension Plan entails an annual subscription plan subsidized up to the tune of 2,100€ annually. The pension plan sees to it that at least 4% of a person’s income is channeled towards retirement benefits. There are also a number of investment plans for this kind of pension but the benefits are 100% taxable. On the other hand, Rürup Pension Plan is more flexible than the latter and this is what is preferred for self-employed people.