German pension system: German pension guide for expats
Find out if you can claim a German pension an expat. This guide explains everything you need to know about understanding the German pension system.
If you are living and working in Germany, it is worthwhile to understand how the German pension system works. When it comes to planning for your retirement, even as a foreigner, you could be eligible to claim a German pension (or die Rente, pension in German) even if you no longer live in Germany. Alternatively, if you move outside the EU or won't qualify for a German pension, you may be able to opt for a German pension refund of your previously paid contributions.
The German pension system currently ranks 12th in the world and even internationals can claim a basic German pension from just five years of working in Germany. Regardless of whether you decide to retire in Germany or move to another country, you will have several decisions to make about your pension in Germany or pension contributions.
To qualify for a German state pension you naturally must meet certain criteria. Below is a helpful guide to understand who can claim a pension in Germany, what is the pension age, pension rates and conditions, and how to apply and contact your German pension office as an expat.
Find out if you can claim a German pension:
- Who can claim a German pension?
- German pension age
- German pensions for foreigners
- Understanding the three-pillar German pension system
- Compulsory German pension health insurance
- Getting a refund on your German pension contributions
- How to apply for your German pension
If you have been working for a German employer who has made contributions to the German pension fund, the Deutsche Rentenversicherung Bund (DRB), on your behalf then you may be eligible for a German pension. There are conditions applicable to the German pension process, notably you must have completed the qualifying insurance period – typically a set amount of months worked – to be able to claim the state pension in Germany.
This is dependent on the type of German pension you are applying for, which may require a minimum qualification period of working and paying German social security for five, 15, 20, 25, 35 or 45 years.
For the standard old-age pension the minimum qualifying period is five years. However, the qualifying periods can be extended in different circumstance, such as a prolonged period of unemployment or in cases where long-term illnesses have resulted in fewer contributions. More information on minimum insurance periods can be found on the English version of the Deutsche Rentenversicherung Bund website.
If you don't meet the qualification periods in Germany but have worked elsewhere in the European Union, you may be eligible to use the total number of years worked within the EU to count towards qualifying for a pro-rata German pension. In some cases, your years worked in other EU countries can influence a higher German pension rate. The EU website explains it in detail.
There are also other German pensions offered in exceptional cases, for example, pensions for severe illness or work injuries, survivor's pensions and miners' pensions. In any case, when assessing your eligibility for a new German pension, you typically must not receive more than a set level of income from the total of all your pensions, assets and earnings, which can include worldwide for some residents.
The overall German pension rate – that is the amount of pension you will receive – is calculated by the number of years contributed to the state German pension system, your age and average income.
The German pension system, similar in other European countries, is currently undergoing some fundamental transitions with regards to pension age. Currently, the official pension age for women and men in Germany is 65 years old, but will be gradually increased to 67 years by 2029.
It is possible to claim early retirement in Germany if you have made contributions for at least 35 years, which will allow you to retire at 63 with a state pension, but the number of months you would have had to work until the German pension age of 65 (or 67 if born after 1963) will be deducted from your pension entitlement. As an example, retiring two years before the pension age could mean a reduction in your German pension of up to 14.5 percent.
However, if an individual has contributed for 45 years, they are eligible to retire at 63 without having any German pension entitlement deducted.
Expats working in Germany can participate in all levels of the three-pillar German pension system (explained below), providing they meet the criteria required by the German pension office.
As discussed above, if you worked in Germany and contributed for a sufficient period the mandatory gesetzliche Rentenversicherung (statutory pension insurance, under German social security) you should be able to claim a German pension. However, while living in Germany, at any time you can opt into company pension schemes or private German pension plans to secure your pension.
In some cases, even if you no longer live in Germany, you may still qualify for a pension in Germany as outlined by the Deutsche Rentenversichering Bund, provided you contributed for more than five years. There are also bi-lateral agreements between EU, EEA and non-EEA member states which make it possible to claim state pension payments from different countries.
In the case of EU citizens you can typically combine pension entitlements from two or more European countries; for example, if you worked and paid contributions for 20 years in the UK and 20 years in Germany, you can claim a pro-rata pension from each country regardless of which one you retire in. You will classed as a 'German resident' if you are a EU citizen, as will non-EU citizens if they legally live in a European member state or bi-lateral agreement country, otherwise a 30 percent deduction could apply to your German pension. It is important to check with the pension authority in your country of residence as claiming a German pension may affect your other pensions or tax requirements
For UK citizens retiring in Germany, there is also the possibility to benefit from QROPS plans. These are essentially offshore pension plans that allow you to transfer your UK company or personal pension schemes and accrued payments abroad. However, you must get approval by HRMC to qualify for a QROPS plan.
A QROPS typically provides additional benefits, besides unfreezing your UK pension equity so you have more pension entitlements to plan your retirement. These include eliminating double tax rates, reduced inheritance tax rates (that can be up to 55 percent upon death), less currency exchange fluctuation and more flexibility on the amount you can withdraw from your QROPS pension fund.
Similar to many countries, Germany operates a three-pillar German pension system that is categorised into different types of German pension. While traditionally many retirees in Germany relied on a generous statutory German pension, an aging population and a system where the not-yet retired pay for the retired, has meant that pensioners now take a diverse approach to planning their retirement funding beyond the state pension in Germany.
Mandatory state pension
The first pillar is the mandatory German state pension, which is known as the Public Retirement Insurance or Gesetzliche Rentenversicherung (GRV) in Germany. Participation in the state pension is compulsory and paid via your contributions to German social security, which operates on a pay-as-you-earn mode (you contribute an ongoing percentage of earned salary). This means current contributions are redistributed to pay for existing pensioners rather than saved or invested, making the state pension a less reliable source of potential income.
The contributions to Germany’s state pension are made by employees and employers, alongside government subsidies. The amount you must contribute to your German state pension (via social security contributions) is calculated on your annual salary, which is automatically deducted by your employer and paid to the state, along with the same amount paid in addition by the employer to make a 50:50 contribution from both parties.
The maximum for mandatory German pension contributions in 2016 was around 18.7 percent of gross income. There is a distinction between east and west Germany, however, due to the differences in average incomes; in western Germany the current contribution assessment ceiling is EUR 6,200 per month (EUR 74,400 annual) while eastern Germany is EUR 5,400 per month (EUR 64,800 annual).
German company pensions
Company or occupational pensions in Germany, known as betriebliche Altersvorsorge (bAV) make up the second pillar of the German pension system. These are private German pension schemes offered by employers, which allow employees to bolster their German pension contributions for retirement.
These schemes aren’t compulsory to employers or employees, but government subsidies and tax breaks are making them more popular with the working population. Reportedly some 60 percent of Germany's working population participates in occupational pensions, and this number is expected to grow in forthcoming decades.
There are multiple employer pension plans, including internal plans, such as a direct pension promise (the employer agrees to pay you a certain amount upon reaching pension age), or external pension plans via direct insurance or life insurance schemes, German pension funds or even specialised insurance companies Pensionskassen or German support funds (Unterstützungskasse), which are companies serving certain employers.
Each employer scheme typically has its German pension system outlining contributions, conditions, tax deductions and pension benefits, and some may offer more advantageous benefits than the state pension, for example, paying out a pension from the age of 65.
Private German pensions
The third pillar of the German pension system is made up of the private pension sector, which incorporate a varying range of individual pension investment plans. These can be set up through banks and insurance providers to increase your total German pension entitlement when you reach pension age.
The main private German pension plans include, but aren’t limited to, the Riester and Rürup plans. These have certain tax and government subsidy benefits, which vary depending on which German private pension you invest in:
- Riester Pension Plan: This is a life annuity plan that requires a minimum of 4 percent of annual income to be paid into the plan, which is then subsidised by the government up to EUR 2,100 per year so suitable for low-income earners. It comes with a choice of five investing variables to suit different circumstances, however, pension benefits are 100 percent taxable.
- Rürup Pension Plan: This is a more flexible life annuity plan better suited to self-employed and freelance workers. It comes with three investing varieties and during the contribution period the contributions are tax deductible. A certain percentage of pension benefits are taxable, however, at around 74 percent (2016) which will rise 2 percentage points annually until 2040.
If you are resident in Germany, once you begin to claim your German pension you must typically begin paying compulsory Pensioner Health Insurance or Krankenversicherung der Rentner (KVdR) to cover healthcare costs, provided you paid sufficient contributions into the state German health insurance system. You will pay for this compulsory health insurance via deductions from your German pension, although a portion will typically be subsidised by the government. How much you pay will be subject to the total amount you receive from state pensions, as well as foreign pensions, so it's important to inform your health insurance fund if this applies to you.
You will then typically be liable to pay Long-term care insurance for pensioners (PVdR – Pflegeversicherung der Rentner), which is also a small percentage taken from your German pension payments. Exceptions apply, however, so research or professional advice is advised.
There are situations where you may be able to get a German pension refund on some or all of your social security contributions to your German pension fund. Typically, a German pension refund is offered to those who no longer are obliged to pay contributions and not entitled to pay into voluntary German pension plans, for example, those who have moved outside the European Union (EU) and Switzerland, or those who have paid German pension contributions for less than the qualifying period of five years. Read about German social security.
For United States, Australian, Canadian or non-EU citizens, it is possible to get a German pension refund on your contributions if you paid for less than 60 months. However, more than 24 months must have passed since you were obligated to pay into the German pension system and you must have either returned home or moved to a non-EU state. Mandatory German pension contributions and voluntary contributions can be refunded up to 50 percent and top-up insurances will be refunded in full, but company pensions are non-refundable.
Residents living outside Germany may also be eligible for a German pension refund – in the form of a supplement – for contributions made to voluntary or private pension plans. This is typically offered if you reside in another European member country or in one of more than 15 countries that have agreements with Germany.
However, EU nationals aren’t entitled to a refund if they are still contributing to social security taxes in another EU country or country with an agreement. You may qualify for a full refund when you reach 65 if you contributed for less than five years or if you have moved to a non-EU state after for more than 24 months, although conditions apply; read the German pension office's information on German pension refunds.
A refund of contributions, however, relinquishes your right to claim any German pension, so you should check the implications of a German pension refund or seek professional advice.
With these types of financial decisions, it is always worth seeking professional advice from a financial advisor or solicitor to ensure you fully understand all German pension rules and taxes that apply, particularly if you have worked in more than one country. In any country, the intricacies of pensions can be complex and varying circumstances can make a big difference in whether you are eligible and – most importantly – the pension rate you will receive.
In Germany, you won't be automatically be given your German pension but must first apply and provide documentation to be approved; a delayed application can thus result in a delayed German pension payment. The first point of contact is your local German pension authority (Deutsche Rentenversicherung or see a list of German pension authorities), which you can do so orally or via email to initiate the process. They will then supply you with the relevant application forms to establish whether, if at all, you qualify and, if so, make sure you receive the appropriate pension entitlement from Germany or any other country that may be relevant to your situation.
Any insured persion in Germany, from the age of 15, can apply for a German pension. An application can be submitted by yourself, a legal representative or an authorised person. In theory, an application can be submitted to any authority that handles social security, as well as to local goverment administration offices or municipality town halls and embassies and consulates abroad. To speed up the process, it is advised to apply at your closest pension authority and make sure your documentation is original and complete, which can include anything from personal identification and proof of insurance to birth, death and education certificates and more.
Useful links: pension Germany
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