Direktversicherung steuerlich absetzbar: Your Path to Smart Retirement Planning 2025
4 Jun 2025
6
Minutes
Katrin Straub
CEO at nextsure
Did you know that with a direct insurance policy, you can reduce your tax burden while also preparing for retirement? Many employees do not yet make the most of this opportunity. Find out here how you can make contributions to direct insurance tax-deductible and what you need to consider.
The topic in brief and concise terms
Contributions to direct insurance for new contracts (from 2005) are tax-free up to eight percent of the contribution assessment ceiling (2025: 644 euros/month) and exempt from social contributions up to four percent (2025: 322 euros/month).
The tax savings are applied directly through the payroll, and a separate entry in the tax return is usually not necessary during the saving phase.
During the payout phase, the benefits are subject to full income tax (deferred taxation) and, for those with statutory insurance, to full health and long-term care insurance contributions (taking into account the allowance).
Quick Facts: Tax benefits of direct insurance at a glance
The direct insurance offers attractive opportunities to save on taxes and boost retirement provision. Contributions are deducted directly from the gross salary, which reduces the taxable income. For the year 2025, up to 644 euros can be deposited per month tax-free. This corresponds to eight percent of the contribution assessment limit of the general pension insurance.
In addition to the tax savings, up to an amount of 322 euros per month (four percent of the contribution assessment limit 2025) is exempt from social contributions. This double saving makes direct insurance a powerful tool for occupational retirement provision. The tax benefits occur during the accumulation phase; the payouts in retirement are then subject to subsequent taxation. Different rules often apply to old contracts (concluded before 2005), often with flat-rate taxation of contributions. The exact handling and whether direct insurance is tax-deductible depends on the individual contract.
Practical Part: How Tax Savings Have a Concrete Impact
Let's assume an employee earns 3,000 euros gross monthly and converts 150 euros into a direct insurance policy. This reduces their taxable income to 2,850 euros. With an assumed marginal tax rate of thirty percent, they save 45 euros monthly in income tax. Additionally, they save social security contributions on the 150 euros, as this amount falls below the social security exemption threshold of 322 euros (as of 2025).
An example calculation for 2025 highlights the potential: With a monthly payment of 200 euros into a direct insurance policy and a gross salary of 3,500 euros (tax class one, childless, subject to church tax), the net monthly savings through lower taxes and social contributions can be approximately 80 to 100 euros. The actual net cost for retirement provision is therefore significantly lower than the converted gross amount. The exact savings depend on the individual tax class and income. More information on retirement provision in the tax return can be found in our blog. These examples show how contributions to direct insurance can be tax deductible and reduce the net burden.
Understanding Contribution Limits and Social Insurance Exemption
The tax deductibility of contributions to direct insurance is subject to upper limits. In 2025, up to eight percent of the contribution assessment ceiling of the general pension insurance (West) can be paid tax-free into a direct insurance. With an expected contribution assessment ceiling of 8,050 euros monthly for 2025 (West), this results in a tax-free maximum amount of 644 euros per month or 7,728 euros per year.
Different limits apply for social insurance exemption: Contributions are only exempt from social security up to four percent of the contribution assessment ceiling. For 2025, this corresponds to an amount of 322 euros monthly or 3,864 euros annually. Contributions that exceed this four percent but are still within the eight percent are tax-free but subject to social security contributions. It is important to know these two different thresholds in order to optimise the benefits. The three pillars of retirement provision offer additional options. Adhering to these limits is crucial to ensure that direct insurance remains tax-deductible and social contributions are saved.
Here is an overview of the limits for 2025 (based on the forecasted BBG West of 8,050 euros/month):
Tax-free: up to 644 euros monthly (eight percent of BBG)
Social insurance-free: up to 322 euros monthly (four percent of BBG)
Annual tax-free maximum amount: 7,728 euros
Annual social insurance-free maximum amount: 3,864 euros
These regulations apply to new contracts (concluded from 2005). Different regulations may apply to older contracts.
Expert Depth: Legal Foundations and Key Sections
The tax incentives for direct insurance are primarily governed by the Income Tax Act (EStG). The key paragraph for this is § 3 No. 63 EStG. This paragraph stipulates the tax exemption for employer contributions (from the primary employment relationship) to a pension fund, pension scheme, or direct insurance, up to eight percent of the contribution assessment ceiling in the general pension insurance. The social insurance exemption for contributions is anchored in § 1 para. 1 sentence 1 no. 9 of the Social Insurance Remuneration Ordinance (SvEV), which refers to contributions up to four percent of the contribution assessment ceiling.
For old contracts concluded before 1 January 2005, § 40b EStG (old version) often applies. Here, contributions could be taxed at a flat rate of twenty percent by the employer, resulting in a tax-free or tax-advantaged payout. The deferred taxation, i.e., the full tax liability of benefits in retirement, is regulated in the Retirement Income Act (AltEinkG) and affects new contracts. The link between insurance and tax is complex. Our expert tip: Carefully check which regulations apply to existing contracts, especially when changing employers.
Direct insurance in the tax return: What do I need to enter?
As a rule, employees do not need to separately declare contributions to direct insurance in their income tax return if they are tax-free under § 3 No. 63 EStG. The employer deducts the contributions directly from the gross salary and takes the tax exemption into account in the monthly payroll. The gross employment income shown on the income tax certificate is already reduced by the tax-free contributions.
An exception may exist for old contracts that are taxed at a flat rate under § 40b EStG, or if voluntary additional payments are made that do not fall under the tax exemption. However, benefits paid out from a direct insurance policy during retirement must be declared in Annex R (for pensions and other benefits) or Annex R-AV/bAV (for benefits from retirement provision contracts and occupational pensions). For most employees, the process during the accumulation phase is therefore very straightforward. It is advisable to check the annual pay slip and the income tax certificate for correct accounting. Information on the deductibility of other forms of pension provision may also be relevant.
Payout phase: Taxes and social contributions in retirement
While the contributions to direct insurance are tax-deductible during the accumulation phase and social security contributions are saved, in the payout phase the so-called deferred taxation takes place. This means that benefits from direct insurance (both pensions and capital withdrawals for new contracts) must be fully taxed at the personal income tax rate as other income according to § 22 Nr. 5 EStG. This rate is often lower in retirement than during working life, which can still mean a tax advantage.
In addition to income tax, contributions to statutory health and long-term care insurance also apply to benefits from direct insurance if the pensioner is legally insured. Here, the full contribution rate (employee and employer share) applies, which can amount to about eighteen to nineteen percent. However, there is an allowance for health insurance contributions on occupational pensions. For 2025, this is expected to be 187.25 euros per month (adjusted annually). Only the amount of the pension exceeding this is subject to contributions. In the case of a capital payout, this is fictitiously spread over ten years to calculate the monthly burden for social security contributions. The question of whether a private pension is subject to health insurance contributions is often asked. For direct insurance, the answer is clear for those legally insured.
Key points for the payout phase:
Full income tax liability on benefits (deferred taxation).
Personal tax rate in retirement is decisive.
Full contributions to statutory health and long-term care insurance (employee and employer share) for those legally insured.
Allowance for health insurance contributions (2025: approx. 187.25 euros/month).
Capital payouts are spread over ten years for social security contributions.
Older contracts (before 2005) may be more tax-favorable upon payout.
Disadvantages and what you should consider
Although the direct insurance offers many advantages, there are also aspects that should be considered. Deferred taxation and full social contributions during the retirement phase can reduce the net payout. The return on the contracts can be influenced by costs, so a thorough comparison is important. Another point is the lower flexibility compared to purely private investment forms. When changing employers, transferring the contract can sometimes be complicated, even though there are legal regulations for the transfer (what to do if the new employer does not take over the direct insurance).
Moreover, the converted salary portions reduce the assessment base for the statutory pension and other social benefits such as unemployment benefit or sick pay. Careful consideration of the advantages and disadvantages is essential. It may be sensible to see direct insurance as one component of a diversified retirement strategy, which also includes subsidised savings plans or other private pension schemes. The question of whether direct insurance is tax-deductible should always be viewed in the overall context of personal financial planning.
Optimise your retirement provision with nextsure
More useful links
Bundesfinanzministerium offers tax guidelines that are relevant for income tax and retirement planning.
Bundesfinanzministerium provides a document on tax incentives for private pension plans.
Deutsche Rentenversicherung offers a detailed explanation of direct insurance.
Statistisches Bundesamt (Destatis) publishes press releases that may contain statistics on retirement provision or demographics.
Bundesministerium für Arbeit und Soziales (BMAS) provides information on additional retirement planning options.
Publikationen der Bundesregierung offer publications on the topic of retirement provision.
FAQ
Is direct insurance always tax-deductible?
Yes, contributions to direct insurance policies concluded after 1 January 2005 are tax-free within the legal limits (§ 3 No. 63 EStG). This means they reduce the taxable gross income. Different regulations applied to old contracts (before 2005), often with flat-rate taxation according to § 40b EStG old version.
What is the maximum tax-free contribution to the direct insurance in 2025?
For the year 2025, it is expected that up to 7,728 euros annually (equivalent to 644 euros monthly) can be paid tax-free into a direct insurance plan. This amounts to eight percent of the contribution assessment ceiling of the general pension insurance (West).
Do I also save on social security contributions with direct insurance?
Yes, contributions to direct insurance are also exempt from social contributions up to an amount of four percent of the contribution assessment ceiling (2025: expected to be 3,864 euros annually or 322 euros monthly).
What does deferred taxation mean in the context of direct insurance?
Deferred taxation means that contributions are tax-free during the accumulation phase, but the benefits (pension or lump-sum payment) in retirement are fully taxed at the personal income tax rate applicable at that time.
Do illness insurance contributions apply to the payout of the direct insurance?
Yes, if you are legally insured when you reach retirement age, you must pay contributions to health and long-term care insurance on benefits from direct insurance. The full contribution rate applies, although an allowance is taken into account (2025: approximately 187.25 euros monthly).
Is a direct insurance policy worth it despite taxes and deductions in retirement?
Whether a direct insurance policy is worthwhile depends on many individual factors, such as the amount of tax and social security savings during the accumulation phase, the return on the contract, and the personal tax rate in retirement. A precise calculation and consultation are advisable. The employer's contribution (at least fifteen percent in the case of salary conversion) further enhances its appeal.
