Germany is an excellent country to live in because of its top-notch healthcare system, attractive sights, high standard of living, and fun activities. It is clear why someone would want to retire in this country. However, that’s not all; another attractive reason for retiring in Germany is that you save up for your pension from your very first paycheck!
However, before you decide to retire in Germany, you must be aware of all of its implications, what’s involved, and the pension options you have. This will help you decide whether retiring in Germany as an expat is for you.
Age of Retirement in Germany
Much like most European countries, Germany welcomes expats to come live and retire in the country. However, the retirement age in the country varies depending on the year you were born and how many years you worked.
For example, people born before 1947 can retire with their pension at 65. Those born between the years of 1947 and 1963 are 67 years old. Lastly, those born after 1964 can retire after turning 67 years old. An employee who has had an exceptionally long career, especially one that spans up to 45 years, can retire as early as 63 years.
The German Pension System
The German pension system comprises three main options that you can opt for as an expat once you retire. However, before we discuss them, you must be aware that you need to work for at least five years as a citizen in Germany before you are eligible to apply for a pension.
Here are three pension options for expats living in Germany:
1. Mandatory State Pension or Gesetzliche Rentenversicherung (GRV)
This includes mandatory monthly contributions from both the employee and the employer. Every month, around 18.3% of your income is deposited towards your pension, with half being paid by you and half by your employer. This retirement scheme is known as Gesetzliche Rentenversicherung (GRV).
It is mandatory for both the employer and employee to pay for this pension scheme. Regardless of their job, everyone pays for this scheme, and all the funds go towards current retirees’ pensions. However, you will need to factor in the fact that, as an expat, the tax will be deducted from the amount during contribution and when the pension is paid to you.
Moreover, another thing to note about this mandatory State pension scheme is that since fewer children are being born, few people will be hitting the German work market in the future. As a result, there will not be enough people to support this system. This is why you should consider supplementing this type of pension with other pension options.
2. German Company and Occupational Pensions or Betriebliche Altersvorsorge (bAV)
The next option for pensions for German expats is the German company and occupational pensions that employees can voluntarily take up. Employers offer this pension option to employees in order to increase their retirement savings.
There are two forms of this type of pension: a promise of direct pension wherein the employer agrees to pay a specific amount to the employee upon retirement. The second form involves hiring an external pension plan, such as Germany’s life insurance or expat insurance.
These are definitely more advantageous than the State pension plan because you will get your pension funds much earlier.
3. Private German Pensions
Private pension in Germany can be arranged via individual pension investment plans with banks, insurance companies, and other private enterprises in order to increase your retirement funds. One such private pension you can consider is the Reister Pension Plan, ideal for individuals with low income. The government contributes with annual subsidizations, and 4% of the yearly gross income is paid into this pension.
The basic pension plan is ideal for freelancers or those with a higher income. Individuals can pay a maximum of €23,712 into their pension plan in a year. Both private pensions are taxable, although the primary pension plan does not deduct that many taxes.
These were some of the main subsidized pension scheme options that you have as an expat in Germany. However, there are also more options for expats living in Germany that are more fund-based and flexible. You will need to get in touch with an expat insurance company to find out more details because depending on which country you are from, you might not be eligible for it.
If you want more guidance, consider contacting MW Expat Solution Services. We provide sound financial plans for expats living in Germany, whether they seek pension options or want to know more about life or renter’s insurance. We can help you with all of that. Visit our website for more information!