Investment & Wealth
Riester pension
unit-linked pension insurances tax-deductible
Unit-linked pension insurances: Tax deductibility and clever structuring options for your retirement provision
Are contributions to unit-linked pension insurance tax-deductible? This question concerns many savers who aim for return-oriented retirement provision. The answer is nuanced and presents both challenges and attractive tax opportunities, especially at the time of payout.
The topic in brief and concise terms
Contributions to private unit-linked pension insurance are generally not tax-deductible, but significant tax advantages await during the payout phase (profit-sharing or half-income method).
For Riester and Rürup pensions (including those linked to funds), contributions can be claimed as special expenses, with the payouts being (partially) taxable later.
The 12/62 rule (minimum term of twelve years, payout from 62) is crucial for the favourable taxation of capital payments from private contracts.
Tax Treatment of Contributions: A Reality Check
Many investors hope to claim tax deductions for their contributions to unit-linked pension insurance, similar to other retirement expenses. However, for purely private unit-linked pension insurance (often referred to as third-tier provision), the rule is: The contributions made during the accumulation phase are not deductible as special expenses according to § 10 Income Tax Act (EStG). This means you pay these contributions from your already taxed net income. However, there are exceptions for state-subsidised options. For a Riester pension, for example, up to 2,100 euros per year can be claimed as special expenses. In 2024, with the Rürup pension, even up to 27,566 euros (single) or 55,132 euros (married) were tax-deductible. For 2025, this amount increases to 29,344 euros or 58,688 euros, with one hundred percent of the contributions being deductible. The good news for private contracts: During the accumulation phase, no taxes are generally levied on the returns within the insurance wrapper, which optimises the compound interest effect. This distinguishes it from direct fund investment, where capital gains tax can be due on returns annually.
The tax treatment during the accumulation phase is therefore clearly defined, but the real benefits often only become apparent later.
Withdrawal phase: Here lie the tax advantages
Although contributions to private unit-linked pension insurance are usually not deductible, you benefit from attractive tax regulations during the payout phase. There are two main options here: lifelong annuity payments or a one-off capital payment. With a lifelong monthly pension, only the so-called profit portion is taxed. This is legally defined in § 22 No. 1 Sentence 3 Letter a Double Letter bb of the Income Tax Act (EStG) and depends on your age at the start of the pension. For example, if your pension begins at 67 years old, the profit portion is only seventeen percent. This means, from a monthly pension of, say, 1,000 Euros, only 170 Euros would need to be taxed at your personal income tax rate. A calculation example: With a pension of 1,500 Euros and a profit portion of seventeen percent, 255 Euros are taxable; with a personal tax rate of thirty percent, that equates to 76.50 Euros in taxes monthly.
If you opt for the one-off capital payment, the half-income procedure applies under certain conditions. The requirements for this are:
The contract must have existed for at least twelve years.
The payout occurs no earlier than upon reaching the age of 62 (for contracts concluded before 2012, after the age of 60).
If these criteria are met, only half of the accrued profits (the difference between the payout amount and the contributions paid) must be taxed at the personal tax rate. An example: You receive a payment of 100,000 Euros and have paid 60,000 Euros in. The profit is 40,000 Euros. Of this, only 20,000 Euros would be taxable. These regulations make the unit-linked pension insurance attractive despite non-deductible contributions. The exact entry in the tax return should be carefully considered.
These tax benefits during the pension phase can often more than offset the non-deductibility of contributions.
Special Case Investment Income: The Partial Exemption as an Additional Bonus
In the case of unit-linked annuity insurance policies, where the capital is invested in equity funds or mixed funds with a certain equity share, there can be an additional tax relief: the partial exemption. This provision from the Investment Tax Act stipulates that a certain percentage of the income from these funds remains tax-free from the outset. For pure equity funds, the partial exemption is thirty percent, for mixed funds with an equity share of at least twenty-five percent, it is fifteen percent of the income. When a unit-linked annuity insurance policy is paid out, which meets the requirements for the partial income procedure (12/62 rule), this partial exemption is considered before the partial income procedure is applied. This means that effectively often less than half of the gross income has to be taxed. An example: With income of 10,000 euros from an equity fund within the policy and a partial exemption of fifteen percent (assumed for the insurance contract), initially only 8,500 euros of the income would be tax-relevant. Then, under the partial income procedure, half of that, i.e., 4,250 euros, would be taxed at the personal tax rate. This can significantly reduce the tax burden compared to a direct investment in funds, where withholding tax applies to the full income (after partial exemption). It is an important aspect that optimizes the connection between insurance and tax.
However, correct application of these rules requires expertise to take full advantage of all the benefits.
Expert knowledge: Old contracts, Riester and Rürup pensions in detail
Contracts for unit-linked pension insurances that were concluded before the first of January 2005 (so-called old contracts) often still benefit from more favourable tax regulations. Under certain conditions, such as a minimum term of twelve years and a premium payment period of at least five years, the capital payouts could be completely tax-free. Contributions to such old contracts could, under certain circumstances, be claimed as other pension expenses in the Annex Pension Expenses (line 49 for contracts before 2005), although often only limited by maximum amounts already exhausted by health and nursing care insurance contributions. The precise tax treatment of pension payments from these old contracts has recently been the subject of legal discussions and statutory clarifications.
Our expert tip: Carefully review the original contract terms and the current legal regulations for old contracts, possibly with professional assistance.
For unit-linked Riester pensions, the contributions, as mentioned, are deductible as special expenses up to 2,100 euros annually (§ 10a EStG). The payouts in retirement are then fully taxable under § 22 No. 5 Sentence 1 EStG. In the case of a capital payout (up to thirty percent of the capital or for small pension amounts), the fifth rule may be applied to mitigate tax progression.
The unit-linked Rürup pension (basic pension) allows the deduction of contributions as special expenses according to § 10 Abs. 1 No. 2 b) EStG. For 2025, this is one hundred percent of the contributions up to the maximum amount of 29,344 euros (single). Pension payments are taxed subsequently, with the taxable portion increasing incrementally (§ 22 No. 1 Sentence 3 Letter a Double Letter aa EStG). For pensions starting in 2025, the taxable portion is 83.5 percent. A capital payout is not provided for with Rürup pensions. Understanding the tax rules for life insurance is helpful in this context.
The choice of the appropriate form of provision largely depends on your individual situation and your tax objectives.
More useful links
The Federal Ministry of Finance provides comprehensive information on the taxation of pensions in Germany.
The Stiftung Warentest offers a detailed comparison of unit-linked pension insurance policies.
Statista provides relevant statistics and data on retirement planning in Germany.
The Federal Ministry of Labour and Social Affairs provides information on retirement income and additional pension options.
The German Pension Insurance explains the structure of the three pillars of retirement provision in Germany.
FAQ
Are unit-linked pension insurances generally tax-deductible?
No, contributions to purely private unit-linked pension insurances (third layer) are not deductible as special expenses. Only contributions to government-supported variants such as the Riester pension (up to 2,100 euros annually) or the Rürup pension (up to 29,344 euros for singles in 2025) can be claimed for tax purposes.
What tax advantages are there upon the payout of a private unit-linked pension insurance?
With a lifelong pension payment, only the small gain portion (depending on age at the start of the pension, for example, seventeen percent at 67 years) is taxed. In the case of a lump-sum payment after a contract period of at least twelve years and completion of the 62nd year of life, only half of the earnings are taxed (half-income method).
What is the 12/62 rule in unit-linked pension insurances?
The 12/62 rule states that for a tax-favored lump-sum payment (half-income method) from a private unit-linked pension insurance, the contract must have existed for at least twelve years, and the payout must not occur before reaching the age of 62 (for old contracts before 2012: 60 years).
How are earnings from equity funds within the policy taxed?
Earnings from equity funds within a unit-linked pension insurance can benefit from a partial exemption (e.g., fifteen percent for mixed funds, thirty percent for equity funds). These tax-free portions reduce the taxable earnings before, for example, the half-income method is applied to a lump-sum payment.
Are there differences in the tax treatment of old contracts (before 2005)?
Yes, for contracts concluded before the first of January 2005, under certain conditions (e.g., twelve-year term, five years of contribution payment), lump-sum payments can be completely tax-free. Contributions could partly be deducted as special expenses but were limited by maximum amounts.
Where can I get individual advice on tax optimisation of my unit-linked pension insurance?
For tailored advice that considers your personal financial and tax situation, we recommend getting in touch with a specialised insurance or tax adviser. Nextsure offers you a free individual risk analysis and optimisation suggestions.
