Skip to main content
Pension Plan Germany

Pension Plan Germany - Everything you need to know as an Expat

Discover everything you need to know about pension plans in Germany as an expat. Learn how to navigate the system and make informed decisions about your retirement.

Fabian Beining

Welcome to "Pension Plan Germany - Everything you need to know as an Expat," where we will dive into the intricacies of the German pension system and shed light on important aspects that every expat should be aware of.

Whether you are planning to live and work in Germany or are already an expat navigating the German pension landscape, this article will provide you with valuable insights and guidance.

Germany's pension system is known for its complexity and comprehensiveness, and understanding how it works is crucial for expats to ensure a secure financial future. From the contributions to entitlements and benefits, we will cover it all. So let's get started!

Now, let's uncover the key aspects of the German pension system and how it impacts expats like you.

Overview of the German Pension System

The German pension system is a complex and comprehensive social security system that provides retirement benefits to its citizens. It plays a crucial role in supporting the elderly population and ensuring financial stability during retirement. Let's dive into some important aspects of the German pension system:

Complexity and Comprehensiveness

The German pension system is known for its intricacy and comprehensiveness. It comprises various pillars, including the public pension scheme, occupational pensions, and private pension plans. This multi-tiered system aims to provide financial security to individuals during their retirement years.

Economic Impact

The German pension system has a significant economic impact on the country. In 2019, pension contributions into Germany's public pension plans comprised around 10.1% of the nation's GDP. This highlights the importance of the pension system as a major contributor to the overall economy.

Eligibility Requirement

To be eligible for the German state pension, individuals typically need to have paid into the system for at least five years. This means that individuals must have been employed in Germany or have made voluntary pension contributions for a minimum period of five years to qualify for pension benefits.

The Value of German State Pension

The value of the German state pension varies based on various factors such as the number of years an individual has contributed, their income level, and their marital status. As of now, the average value of the German state pension is 1,361 euros for men and 1,148 euros for women. It's important to note that these values are subject to change and may vary based on individual circumstances.

Remember: The German pension system is designed to provide financial support during retirement, but it may not be sufficient for everyone. Supplementing your pension with private pension planning is highly recommended to ensure a comfortable retirement.

Economic Impact of Pension Funds

Pension funds in Germany play a crucial role in managing and investing pension contributions. The total value of equity and investment fund shares owned by pension funds in Germany in 2021 was over 501 billion euros. This highlights the significant role that pension funds play in stimulating the economy and ensuring the growth of retirement savings.

Government Incentives for Private Pension Planning

The German government encourages its inhabitants to supplement future lower pension levels with private pension planning. To facilitate this, it offers various incentives, such as the Riester and Rürup plans. Expatriates living in Germany can participate in these plans to enhance their retirement savings and enjoy tax advantages.

In the next section, we will delve deeper into German pension contributions and the pay-as-you-go system, shedding light on how the system is funded and the distribution of contributions.

German Pension Contributions and the Pay-as-you-go System

When it comes to the German pension system, one important aspect to understand is how pension contributions are calculated and how the system operates. Let's take a closer look at German pension contributions and the pay-as-you-go system:

Contribution Rate

Currently, employees in Germany pay 18.6% of their gross income into the pension system. This percentage includes both the employee's contribution and the employer's contribution. Additionally, there is an additional 2.05% contribution that goes into a fund for extended disability.

The contribution rate is applied to a specific income threshold, which is adjusted annually. For 2021, the income threshold is set at €85,200 per year. This means that any income above this threshold is not subject to pension contributions.

Distribution of Contributions

The German pension system operates on a pay-as-you-go system. This means that current employees are paying for the pensions of current retirees. The contributions made by employees and employers are used to fund the pension benefits of those who are currently receiving pension payments.

It's important to note that the German pension system is not fully funded. This means that the contributions made by individuals and employers are not invested to build up individual pension accounts. Instead, they are used to immediately pay out pension benefits to current retirees. This system relies on the continuous inflow of contributions from current workers to sustain the pension payments.

The pay-as-you-go system can lead to challenges in the future, particularly due to demographic changes. As the population ages and the number of retirees increases, the burden on the current workforce to fund pension benefits may become heavier. This is why the German government encourages individuals to consider private pension planning to supplement their future pension income.

Understanding how pension contributions are calculated and how the pay-as-you-go system operates gives expatriates living in Germany a clearer picture of how the German pension system functions. This knowledge can help individuals make informed decisions about their retirement planning and ensure they are maximizing their pension entitlements.

Private Pension Planning in Germany

Planning for retirement is an essential part of financial well-being, especially for expatriates living in Germany. While the German state pension system provides a solid foundation, it's important to consider private pension planning to supplement future pension levels. Let's dive into the options available for private pension planning in Germany.

Riester and Rürup Plans

Expatriates living in Germany have the opportunity to participate in two popular private pension plans: Riester and Rürup plans.

  1. Riester Plan: The Riester plan is a government-backed pension scheme that offers tax advantages and additional subsidies. It is designed for individuals and families and includes a variety of investment options such as mutual funds, bank savings, and insurance-based products. Contributions made to the Riester plan are deductible from taxes and a basic allowance is provided by the government. Additional allowances are available for each child and for low-income earners.
  2. Rürup Plan: The Rürup plan, also known as the Rürup-Rente, is a private pension scheme oriented towards self-employed individuals and high-income earners. Contributions to the Rürup plan are tax-deductible, providing immediate tax benefits. The plan offers different investment options, including insurance-based products and investment funds.

Government Incentives

The German government actively encourages its residents to engage in private pension planning and offers various incentives to incentivize participation. Here are a few notable incentives:

  1. Employer Contributions: Some employers in Germany offer company pension schemes where they contribute a certain percentage of an employee's salary towards their private pension. These contributions are additional to the employee's own contributions.
  2. Tax Deductions: Contributions made to private pension plans, such as the Riester and Rürup plans, are tax-deductible up to a certain limit. This means that you can reduce your taxable income by contributing to these plans, potentially lowering your overall tax liability.
  3. Subsidies and Allowances: The Riester plan provides additional subsidies and allowances for low-income earners, families, and for each child. These subsidies and allowances help make private pension planning more accessible and affordable for individuals and families on lower incomes.

Private pension planning provides expatriates with the opportunity to secure a comfortable retirement in Germany. By taking advantage of the Riester and Rürup plans, as well as the government incentives available, expatriates can build a robust private pension alongside the state pension.

"Private pension planning is an important aspect of securing your financial future in Germany. By participating in pension plans like Riester and Rürup, expatriates can enjoy tax advantages and additional subsidies while building a strong retirement fund."

Entitlements, Benefits, and Claims

As an expatriate living and working in Germany, it's important to understand the entitlements, benefits, and claims associated with the German pension system. Here's what you need to know:

State Pension

  • If you work for over five years in Germany, you're eligible for the German state pension.
  • The amount of your state pension is based on your average income over your working years and the number of years you contributed to the system.
  • The average value of the German state pension is 1,361 euros for men and 1,148 euros for women. This amount can vary based on individual circumstances.
  • The state pension provides a reliable source of income during retirement and is an important part of the overall pension system in Germany.

Early Retirement Regulations

  • German pension entitlements will be reduced by 3.6% per year of early retirement if retirement happens before the age of 65. This reduction is applied to account for the longer period of time that the pension will be paid out.
  • Early retirement is possible under certain circumstances, such as disability or if a person has contributed to the pension system for at least 45 years.
  • It's important to consider the implications of early retirement, as it may result in a lower pension amount.

Disputed Claims

  • In some cases, individuals may face issues with their pension claims, such as delays or disputes over the eligibility of certain benefits.
  • If you encounter any problems with your pension claim, it's important to reach out to your German insurance fund and provide them with all the necessary documentation and information.
  • Working with an advisor or seeking legal assistance can help resolve any disputes and ensure that you receive the full benefits you are entitled to.

Understanding your entitlements, benefits, and claims under the German pension system is crucial for planning your financial future as an expatriate. It's recommended to educate yourself about the specific rules and regulations that apply to your situation and seek professional advice if needed.

"The German pension system offers a solid foundation for retirees, providing a reliable income during their golden years. By understanding the entitlements, benefits, and claims under this system, expatriates can make informed decisions to secure their financial future."

Implications for Expatriates

Germany is a popular destination for expatriates, offering a high quality of life, excellent job opportunities, and a strong social security system. As an expatriate living and working in Germany, it's important to understand the implications of the German pension system on your financial future. Here are some key points to consider:

Skilled Immigration Act

The Skilled Immigration Act, implemented in March 2020, has expanded regulations for employment and retirement benefits for expatriates in Germany. Under this act, skilled workers from non-EU countries have more access to employment opportunities and the possibility of obtaining a residence permit in Germany. This means that as an expatriate, you have a higher chance of building a long-term career in Germany and contributing to the German pension system.

Pension Refund for Expats

If you decide to return to your home country from Germany, you may be eligible to receive a refund of the pension contributions you made during your time in Germany. This can be a significant financial benefit for expatriates who plan to return to their home country and may not be eligible for a German pension in the future. It's important to note that the refund amount will depend on the total contributions you made and the duration of your stay in Germany.

Maximum Annual Contributions

As an expatriate, you have the opportunity to contribute to the German pension system. However, there is a maximum limit on the amount you can contribute annually. Currently, the maximum annual contribution for individuals is set at 23,712 euros. For couples, the maximum contribution amount doubles. It's important to be aware of these limits and plan your contributions accordingly to maximize your benefits.

Overall, as an expatriate living in Germany, the implications of the German pension system can have a significant impact on your financial future. Understanding the regulations, benefits, and limitations of the system will enable you to make informed decisions and take the necessary steps to secure your retirement. Whether you plan to stay in Germany long-term or eventually return to your home country, it's vital to explore your options and seek professional advice to ensure you make the most of the opportunities available to you.

"By understanding the implications of the German pension system, expatriates can make informed decisions to secure their financial future."

The Historic Background of the German Pension System

The German pension system holds a significant place in history as the first formal pension system in the world. It was established nearly 120 years ago by Otto von Bismarck, the first Chancellor of Germany.

During Bismarck's time, Germany was experiencing social and economic changes due to industrialization. The country saw the need for a comprehensive social welfare system to address the challenges faced by its citizens, particularly the working class.

Bismarck's vision was to provide financial security to workers in their later years. In 1889, the German government introduced the "Old Age and Disability Insurance" program, which laid the foundation for the modern-day pension system. This program marked the beginning of the pay-as-you-go system, where current workers contribute to the pension fund, which is then used to pay benefits to retirees.

The introduction of the German pension system was a groundbreaking development at the time. It became a model for other countries around the world to follow, and many nations later implemented their own pension programs based on the German model.

Over the years, the German pension system has undergone several reforms and expansions to adapt to changing demographics and economic conditions. It has remained a crucial pillar of social welfare in Germany, providing financial stability and support to retirees.

Today, the German pension system continues to be shaped by various factors, such as demographic shifts, economic fluctuations, and political considerations. The government regularly evaluates the system to ensure its sustainability and effectiveness in providing adequate retirement benefits to the population.

Understanding the historical background of the German pension system helps us appreciate the significance and impact it has had on social welfare and retirement planning not only in Germany but also worldwide. It serves as a testament to the country's commitment to taking care of its citizens and ensuring their well-being in their golden years.


In conclusion, understanding the German pension system is crucial for expats residing in Germany. Whether you are planning to rely on the state pension or considering private pension options, it's important to know the eligibility requirements, contribution rates, and available benefits. Here are a few key takeaways to remember:

  1. The German pension system is complex and comprehensive, with contributions comprising a significant portion of the nation's GDP. The average value of the German state pension varies between genders.
  2. Employees in Germany currently contribute 18.6% of their gross income to the pension system, with additional funds allocated towards disability. The system operates on a pay-as-you-go model, meaning current workers fund the pensions of retirees.
  3. Private pension planning is encouraged in Germany, with options like the Riester and Rürup plans available to expatriates. Government incentives exist to support individuals in supplementing their future pension levels.
  4. Eligible individuals who work for more than five years in Germany can claim the German state pension. Early retirement may result in reduced entitlements, and disputed claims can be resolved via the German insurance fund.
  5. Expatriates should be aware of the implications of the Skilled Immigration Act, which has expanded regulations for employment and retirement benefits. Those who return home from Germany can claim their pension contributions as a refund. Additionally, there are maximum annual contribution limits for the basic pension plan.

Understanding the German pension system and planning for the future can help expats secure their financial well-being. If you have any questions or need further assistance with your financial planning, consider reaching out to a trusted financial advisor like Finanz2Go. They can provide expert guidance and help you navigate the complexities of the German pension system.

Remember, taking control of your financial future is essential, and with the right knowledge and support, you can build a secure and predictable financial foundation for your life in Germany.

To learn more about Finanz2Go and how they can assist you as an expat in Germany, visit Finanz2Go.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making any investment or financial decisions.

Frequently Asked Questions

  1. What is a pension plan in Germany? A pension plan in Germany is a retirement savings system that provides financial support to individuals after they reach retirement age. It is designed to ensure a stable income and a comfortable lifestyle during retirement.
  2. Can expats in Germany contribute to a pension plan? Yes, expats in Germany can contribute to a pension plan. If you are an employee, your contributions will be deducted automatically from your salary. Self-employed expats can choose to contribute voluntarily.
  3. How much should I contribute to a pension plan in Germany? The amount you should contribute to a pension plan in Germany depends on various factors, such as your income and future retirement goals. As a general guideline, it is recommended to contribute around 18.6% of your gross income, with the employee and employer sharing the contributions.
  4. How does the pension system work in Germany? In Germany, the pension system follows a pay-as-you-go principle. Current workers contribute to the pension fund, and these contributions are used to pay the pensions of current retirees. When you retire, the next generation of workers will contribute to fund your pension.
  5. Can I transfer my pension benefits from another country to Germany? In some cases, it is possible to transfer your pension benefits from another country to Germany. However, this depends on the specific regulations and agreements between the countries involved. It is recommended to consult with a financial advisor or the pension authority in your home country for assistance.