As a result of the government’s 2001 pension reform, private / personal pension plans have become an essential component of old age social security.
The gross incomes of individuals in gainful employment are subject to social insurance contributions to the Deutsche Rentenversicherung – DRV (German statutory pension insurance scheme). Self-employed individuals have no statutory system of provision for old age.
Artists and media professionals within the KSK constitute an exception. Here, however, the contributions to the Deutsche Rentenversicherung are determined based on their annual profits.
The average reported annual profit for all young professionals, as of 1 January 2009, was approximately 10.000 €. The average for all insured employees was 13.000 €. Based on this, the statutory old age pension entitlement would amount to 450 € (net) after 35 insurance years.
A supplementary, private pension plan is thus an absolute must! What form of old-age pension scheme is suitable – whether state-subsidized such as the Riester Rente, eligible for tax credits like the Rürup Rente, or a purely private pension plan – is something that must be determined case by case.
The Riester Rente is a type of private pension scheme subsidized by the state. Through long-term contribution payments, the taxable individual accrues own pension capital. For joining this pension plan, the individual also receives government subsidies. And, as the case may be, beyond these subsidies individuals may also get a tax break by claiming the premiums as a deductible special expense.
A family of four can receive government subsidies of over 900 € annually!
Rürup Rente is a pension plan available since 2005 with tax deductible premiums. It corresponds to the statutory pension as far as its performance criteria are concerned but it is not financed through a statutory pay-as-you-go system. Instead, it is invested in the capital market.
In contrast to private pension plans, there is no lump sum option with the Rürup Rente. In other words, the saved up amount may not be paid out as a lump sum but is gradually paid out as a pension over the course of the insured individual’s retirement.
And keep in mind: Only those who are subject to taxes can also save on taxes!