Investment & Wealth
Private Pension Insurance
pursue a private supplementary pension
Design your private additional pension optimally: Your path to financial security in retirement
The statutory pension alone is often not sufficient to maintain the accustomed standard of living in retirement. Therefore, a private supplementary pension is essential for many. Learn how to find the right provision for yourself and avoid financial bottlenecks.
The topic in brief and concise terms
The state pension is often insufficient; a private supplementary pension is usually essential to maintain the standard of living in retirement.
There are various forms of private supplementary pensions (e.g. classic, unit-linked, Riester, Rürup) that should be individually selected to suit your needs.
Starting early, minimizing costs, and making use of government grants are key factors for a successful private retirement plan.
Understanding the necessity of a private supplementary pension
The statutory pension forms the foundation of retirement provision in Germany, but its effectiveness is declining. In 2023, the average monthly retirement pension for men with at least 35 years of contributions was 1,800 euros, and for women, only 1,333 euros. These amounts highlight that additional provision is essential for most citizens. Many underestimate the emerging pension gap between their last net income and the actual statutory pension. Without a private supplementary pension, significant financial constraints threaten in old age. The need to pursue a private supplementary pension early on also arises from demographic changes. Therefore, it is important to be familiar with the various private retirement provision options and to develop a strategy that suits one's individual situation.
Quick Facts: Core aspects of private supplementary pensions
Before we delve deeper into the subject, here are the key points about the private supplementary pension in brief. A private supplementary pension closes the gap in statutory provision and secures your standard of living. There are various implementation methods, including the classic private pension insurance, Riester and Rürup pensions, as well as fund-linked variants. Government subsidies and tax advantages can increase the yield of certain products, like the Riester pension. Choosing the right product depends on your individual life situation, risk appetite, and financial goals. Early planning often enables significant wealth accumulation even with small contributions. Contributions to pure private pension insurance are generally not tax deductible, but you benefit in the payout phase. The complexity of the products and possible costs require careful examination and ideally expert advice.
Securing the standard of living in old age.
Various retirement options available.
Utilize government grants.
Individual product choice is crucial.
Starting early is often advantageous.
Weigh costs and yield opportunities.
These fundamentals will help you better place the subsequent more detailed information.
Practical Part: Real Examples and Comparison Methods for Your Supplementary Pension
To make the theory more tangible, let's look at some practical examples. Suppose a 30-year-old person wants an additional monthly pension of 500 euros starting at the age of 67. With a unit-linked annuity, they would need to save, depending on the expected return, for example, 100 euros per month. If the same person starts only at the age of 45, the monthly contribution rises to about 250 euros. This illustrates the advantage of an early start. An important factor in the payout is the so-called pension factor, which indicates how much monthly pension is paid for every 10,000 euros of accumulated capital. A pension factor of 30, for example, means 300 euros pension with 100,000 euros capital. The level of the pension factor can significantly influence the later pension. When choosing between a lump sum payment or a lifetime annuity, tax aspects play a role. Compare offers carefully, pay attention to costs and the flexibility of the contracts.
Forms of private supplemental pensions in detail
There are various forms of private additional pensions, each with specific characteristics. The classic private pension insurance often offers a guaranteed minimum interest rate; currently, since January 1, 2025, the guaranteed interest rate is one percent. However, the return opportunities here are usually lower. An attractive alternative may be the unit-linked pension insurance, where contributions are invested in investment funds, offering higher return potentials but also comes with higher risks. Government-subsidised options include the Riester pension, particularly suitable for families and low-income earners, and the Rürup pension (basic pension), primarily aimed at self-employed and high earners. With the Riester pension, there are state allowances, for example, a basic allowance of 175 euros annually per saver. [,""] The Rürup pension, on the other hand, scores with high tax deductibility of contributions. The following list shows common options:
Classic private pension insurance: Security with often lower returns.
Unit-linked pension insurance: Higher return opportunities with higher risk.
Riester pension: State allowances and tax benefits.
Rürup pension (basic pension): High tax deductibility of contributions.
Occupational pension scheme (bAV): Provision through the employer.
Private fund savings plans: Flexible investment form with return opportunities.
Choosing the right form is an important step towards a secure future.
Costs and Returns: What Your Additional Pension Really Delivers
The yield of a private supplementary pension is significantly influenced by costs. Initial and distribution costs, as well as ongoing administrative costs, can diminish returns. With unit-linked pension insurance, additional fund costs are incurred. A cost ratio of two percent and more can substantially reduce returns. [,""] Therefore, pay attention to the effective costs, which take all types of costs into account. The profit opportunities vary greatly depending on the product. Traditional policies often offer only a low ongoing interest rate, which in recent years has been around two to two and a half percent, while unit-linked products can achieve higher returns but are also subject to market fluctuations. A pension calculator can help to explore different scenarios. Choosing a cost-effective ETF within a unit-linked policy can positively impact returns. [,""] Compare the guaranteed pension and the pension factor of different providers to find the best offer for you. A careful analysis of the cost structure is essential to maximize the net return of your retirement provision.
Understanding the Three Pillars of Retirement Provision
The German pension system is based on a three-tier model. The first tier forms the basic provision, which includes the statutory pension insurance, the Rürup pension, and professional pension schemes. [,""] This tier serves to secure the basic needs. The second tier includes additional provisions, such as the Riester pension and occupational pensions (bAV). [,""] Here, there are government incentives in the form of allowances or tax advantages. The private additional pension, which is not directly subsidised by the state, belongs to the third tier. [,""] This includes, for example, private pension insurance, endowment life insurance (concluded after 2004), and investment savings plans. These products often offer a high level of flexibility in contract design and payout. Understanding this structure helps to optimally set up one's own pension strategy and sensibly combine the different components. This way, you can specifically aim for a private additional pension that meets your individual needs.
Recommendations for action: Your next steps towards a private supplementary pension
The path to the right private supplementary pension begins with an honest assessment of your current financial situation and your retirement goals. Determine your anticipated pension gap, which is the difference between your desired income in retirement and your expected statutory pension payments. Define how much you can set aside monthly for your retirement savings; often, ten to fifteen percent of net income is a good benchmark. [,""] Gather comprehensive information about the various products and their advantages and disadvantages. Here are some specific steps:
Identify your pension gap: How much additional money will you need besides the statutory pension?
Set realistic savings goals: How much can and do you want to invest each month?
Compare different offers: Obtain at least three quotes for the considered products.
Pay attention to costs: Compare the effective costs, not just the declared returns.
Check for flexibility: Are adjustments to contributions or additional payments possible?
Consider your risk tolerance: Choose products that match your risk profile.
Seek independent advice: An expert can help you make the right decision.
Start saving as early as possible to make the most of compound interest. Careful planning and selection are key if you aim to build a successful private supplementary pension. Also, consider whether there is a mandatory health insurance for your private pension.
Conclusion: Proactively secure your financial future in retirement
Seeking a private supplementary pension is a crucial step to ensure financial security and independence in retirement. Given the decreasing benefits of statutory pension insurance, personal initiative is required. The variety of products, ranging from classic pension insurance to unit-linked models and government-supported variants like Riester and Rürup, offers a suitable solution for almost every life situation. The key is early and careful planning, considering your own financial capabilities and risk tolerance, as well as closely examining costs and return opportunities. The complexity of the matter should not deter you but rather serve as motivation to become well-informed and, if necessary, seek professional support. Remember, even small but regular contributions over a long period can make a significant difference. If you are wondering "Not enough pension, what to do?", the private supplementary pension is one of the most important answers. Take charge of your retirement planning actively.
Request your individual risk analysis now: Have your insurance situation checked for free and receive concrete optimization suggestions.
More useful links
The Federal Ministry of Finance provides insights into the law for the reform of occupational pensions (pAV-ReformG).
The German Pension Insurance offers comprehensive information on the various options for retirement provision in Germany.
Destatis, the Federal Statistical Office, publishes a press release here on the number of people receiving basic income support in old age.
The Consumer Advice Centre offers independent consumer advice on private pension insurance and its suitability for retirement provision.
The DIW Berlin (German Institute for Economic Research) provides information on retirement provision here.
Destatis offers detailed information here on the poverty risk of older people in the context of demographic change.
The Federal Ministry of Labour and Social Affairs (BMAS) provides information on the various aspects of additional retirement provision.
FAQ
What is the pension gap?
The pension gap is the difference between the last net income before retirement and the expected statutory pension. A private supplementary pension helps to close this gap.
Are contributions to private pension insurance tax-deductible?
Contributions to pure private pension insurances (without state subsidies such as Riester or Rürup) are generally not tax-deductible. Exceptions may apply to contracts concluded before 2005.
What is the pension factor?
The pension factor indicates how much monthly pension is paid out per 10,000 euros of accumulated capital. A higher guaranteed pension factor means a higher guaranteed pension.
What role do costs play in a private supplementary pension?
The costs (initial, distribution, and administrative costs) can significantly reduce the return on a private supplementary pension. It is important to pay attention to low effective costs.
Is a capital payout possible with a private pension insurance?
Yes, many private pension insurances offer a capital option, meaning you can choose at the start of the pension whether to receive a lifelong pension or a one-off capital payout. The tax treatment differs.
What advantages does a unit-linked pension insurance offer?
A unit-linked pension insurance offers the chance for higher returns than traditional models, as the contributions are invested in investment funds. However, this is also associated with higher investment risks.
