Unit-linked pension insurance policies: tax deductibility and clever structuring options for your retirement provision
27.05.25
11
Minutes
Katrin Straub
Managing Director at nextsure
Are contributions to unit-linked pension insurance policies tax-deductible? This question concerns many savers who want to make return-oriented provision for retirement. The answer is nuanced and presents both challenges and attractive tax advantages, especially at the point of payout.
The topic in brief and concise terms
Contributions to private unit-linked pension insurance policies are usually not tax-deductible, but there are considerable tax advantages in the payout phase (income share method or half-income method).
With Riester and Rürup pensions (including unit-linked ones), contributions can be claimed as special expenses, while the payouts are later taxable, in whole or in part.
The 12/62 rule (minimum term of twelve years, payout from age 62) is crucial for the favourable tax treatment of lump-sum payments from private contracts.
Tax treatment of contributions: A reality check
Many investors hope to be able to deduct their contributions to a unit-linked pension insurance from tax, similar to other retirement provisions. However, for a purely private unit-linked pension insurance (often referred to as third-pillar provision), the following applies: the contributions paid in are not deductible as special expenses under Section 10 of the Income Tax Act (EStG) during the savings phase. This means that you pay these contributions from your net income, after tax has already been deducted. There are, however, exceptions for state-subsidised variants. For a Riester pension, for example, up to 2,100 euros per year can be claimed as special expenses. In the case of the Rürup pension, in 2024 up to 27,566 euros (single) or 55,132 euros (married) could even be taken into account for tax purposes. For 2025, this amount rises to 29,344 euros or 58,688 euros, with 100 per cent of contributions then deductible. The good news for private contracts: during the savings phase, returns within the insurance wrapper are generally not taxed, which optimises the compound interest effect. This sets them apart from direct fund investment, where annual flat-rate withholding tax may be due on returns.
The tax treatment during the savings phase is therefore clearly defined, but the real benefits often only become apparent later.
Payout phase: This is where the tax advantages lie
Although contributions to private unit-linked pension insurance are usually not tax-deductible, you benefit in the payout phase from attractive tax rules. There are two main options here: a lifelong annuity or a one-off capital payout. With a lifelong monthly pension, only the so-called earnings portion is taxed. This is legally set out in Section 22 No. 1 sentence 3 letter a double letter bb of the EStG and depends on your age when the pension starts. If your pension starts at age 67, for example, the earnings portion is only seventeen per cent. This means that, of a monthly pension of 1,000 euros, for example, only 170 euros would be taxed at your personal income tax rate. A calculation example: with a pension of 1,500 euros and an earnings portion of seventeen per cent, 255 euros are taxable; at a personal tax rate of thirty per cent, that would be 76.50 euros in tax per month.
If you opt for the one-off capital payout, the half-income method applies under certain conditions. The requirements for this are:
The contract must have been in force for at least twelve years.
The payout takes place no earlier than after reaching the age of 62 (for contracts concluded before 2012, after the age of 60).
If these criteria are met, only half of the earnings generated (difference between the payout amount and the contributions paid in) must be taxed at the personal tax rate. An example: you receive 100,000 euros paid out and have paid in 60,000 euros. The earnings amount to 40,000 euros. Of this, only 20,000 euros would be taxable. These rules make the unit-linked pension insurance attractive despite contributions that are not tax-deductible. The exact entry in the tax return should be carefully considered.
These tax advantages in the retirement phase can often more than compensate for the lack of tax deductibility of the contributions.
Special case investment income: the partial exemption as an additional bonus
With unit-linked annuity insurance policies, whose capital is invested in equity funds or mixed funds with a certain equity allocation, there may be an additional tax relief: the partial exemption. This rule from the Investment Tax Act provides that a certain percentage of the returns from these funds remains tax-free from the outset. For pure equity funds, the partial exemption amounts to thirty per cent; for mixed funds with an equity allocation of at least twenty-five per cent, it is fifteen per cent of the returns. When a unit-linked annuity insurance policy that meets the requirements for the half-income method (12/62 rule) is paid out, this partial exemption is taken into account before the half-income method is applied. This means that, in effect, often less than half of the gross returns have to be taxed. For example: with returns of 10,000 euros from an equity fund within the policy and a partial exemption of fifteen per cent (assumed for the insurance contract), initially only 8,500 euros of the returns would be tax-relevant. Under the half-income method, half of this amount, i.e. 4,250 euros, is then taxed at the personal tax rate. This can significantly reduce the tax burden compared with a direct investment in funds, where capital gains tax is levied on the full returns (after partial exemption). It is an important aspect that optimises the combination of insurance and tax.
However, the correct application of these rules requires expertise in order to make full use of all advantages.
Expert knowledge: legacy contracts, Riester and Rürup pensions in detail
For contracts for unit-linked pension insurance policies concluded before 1 January 2005 (so-called old contracts), more favourable tax rules often still apply. Under certain conditions, such as a minimum term of twelve years and a contribution payment period of at least five years, lump-sum payments could be completely tax-free. Contributions to such old contracts could, in some circumstances, be claimed as other retirement provision expenses in the annex to retirement provision expenses (line 49 for contracts before 2005), although often only to the extent of maximum amounts that had already been exhausted by health and long-term care insurance contributions. The precise tax treatment of pension payments from these old contracts was most recently the subject of legal debate and statutory clarifications.
Our expert tip: With old contracts, check the original contract terms and the current statutory rules carefully, with professional support if necessary.
For unit-linked Riester pensions, as mentioned, contributions of up to 2,100 euros per year are deductible as special expenses (§ 10a EStG). However, the payouts in retirement are then fully taxable under § 22 no. 5 sentence 1 EStG. In the event of a lump-sum payment (up to thirty per cent of the capital or in the case of small pensions), the one-fifth rule can be applied to soften tax progression.
The unit-linked Rürup pension (basic pension) allows contributions to be deducted as special expenses under § 10(1) no. 2b EStG. For 2025, this amounts to one hundred per cent of the contributions up to the maximum amount of 29,344 euros (single persons). Pension payments are taxed later, with the taxable share increasing gradually (§ 22 no. 1 sentence 3 letter a double letter aa EStG). For pensions starting in 2025, the taxable share is 83.5 per cent. A lump-sum payment is not provided for with Rürup pensions. Understanding the tax rules for life insurance policies is helpful here.
The choice of the right type of retirement provision depends heavily on your individual situation and your tax objectives.
Design tips and recent rulings: What you should bear in mind
To make the most of the tax advantages, you should take a few structuring tips into account. For private unit-linked pension policies, complying with the 12/62 rule for lump-sum payment is crucial if you want to benefit from the half-income method. Consider early on whether an annuity payment or a lump-sum payment is better suited to your financial situation in retirement. The flexibility of many modern contracts often also allows a combination or later adjustments. Also note the option of termination and its tax consequences , which are often disadvantageous.
Current court rulings can also have an impact on taxation. For example, in a judgment dated 13 March (case no. I R 1/20), the Federal Fiscal Court (BFH) decided that foreign funds investing in German shares had been paying capital gains tax on dividends for years without justification, which can lead to refund claims. Even though this does not directly affect the deductibility of your contributions, it shows how dynamic tax law is. It is advisable to keep an eye on current case law or seek advice.
The following points are important for your planning:
Document all payments and contract data carefully for at least twelve years.
Check the equity allocation of your fund investment with regard to partial exemption.
Have the tax implications of the various payout options calculated before concluding the contract.
For Riester contracts, ensure the correct entry in Appendix AV to secure allowances and tax savings.
For self-employed people, the Rürup pension can be very advantageous despite deferred taxation because of the high deductibility of contributions during the accumulation phase.
Careful planning and knowledge of the tax framework are essential for successful retirement provision with unit-linked products.
Request an individual risk analysis now: have your insurance situation reviewed free of charge and receive specific optimisation suggestions.
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 provision in Germany.
The Federal Ministry of Labour and Social Affairs provides information on retirement income and supplementary pension options.
The German Pension Insurance explains the structure of the three pillars of retirement provision in Germany.
FAQ
Are unit-linked pension insurance policies generally tax-deductible?
No, contributions to purely private unit-linked pension insurance policies (third pillar) are not tax-deductible as special expenses. Only contributions to state-subsidised options such as the Riester pension (up to €2,100 per year) or the Rürup pension (up to €29,344 for single people in 2025) can be claimed for tax purposes.
What tax advantages are there when a private unit-linked pension insurance policy is paid out?
With a lifetime annuity payment, only the small taxable portion of the return (depending on the age at the start of the pension, e.g. seventeen per cent at 67) is taxed. In the case of a lump-sum payment after a contract term of at least twelve years and upon reaching the age of 62, only half of the gains must be taxed (half-income method).
What is the 12/62 rule for unit-linked pension insurance?
The 12/62 rule states that, for a tax-privileged capital payout (half-income method) from a private unit-linked pension insurance policy, the contract must have been in place for at least twelve years and the payout must not take place before the age of 62 (for older contracts before 2012: age 60).
How are returns from equity funds taxed within the policy?
Returns from equity funds within a unit-linked pension insurance policy can benefit from a partial exemption (e.g. fifteen per cent for mixed funds, thirty per cent for equity funds). These tax-free portions reduce the taxable return before, for example, the half-income method is applied when capital is paid out.
Are there differences in the tax treatment of existing contracts (before 2005)?
Yes, for contracts concluded before 1 January 2005, capital payouts may be completely tax-free under certain conditions (e.g. twelve-year term, five years of contributions). The contributions could in some cases be deducted as special expenses, but were limited by maximum amounts.
Where can I get personalised advice on the tax optimisation of my unit-linked pension insurance?
For tailored advice that takes your personal financial and tax situation into account, we recommend that you contact a specialised insurance adviser or tax adviser. nextsure offers you a free individual risk analysis and optimisation suggestions.
