You will not be able to maintain your standard of living with the statutory pension. What you can do to still have enough money in old age.
The most important thing in brief:
- The net pension is lower than the annual pension information would suggest.
- You can close the personal pension gap through additional private retirement products and building up assets. Experts recommend using 10 to 15 percent of your monthly net income for retirement provision in addition to the statutory pension, if possible.
- One way to improve your private pension provision is through capital formation benefits (VL), which some employers offer.
The usual standard of living in retirement cannot be maintained with the statutory pension alone. Experts therefore speak of the pension gap: what is meant is the difference between the cost of living in old age and the amount of payments from the statutory pension. The pension gap varies greatly from person to person, depending on how high your income was over the years you worked. This depends on how many pension points, also known as earnings points, you collect over the course of your working years. You receive one salary point for every year of employment in which your income corresponds to the average gross salary of all insured persons. Anyone who earns an average salary over 45 years can expect a pension payment of approximately half of their previous income.
You should not underestimate the extent of your own pension gap. What is written in the pension information is not the amount that ends up in your account. You still have to pay taxes and health and nursing care insurance from your statutory pension. This means: The net pension is lower than the annual pension information would suggest. Inflation is also eating away at the purchasing power of future pensioners. Read more about this in our situation briefing. The good news: You can close the personal pension gap through additional private retirement products and building up assets.
Provision with the state and employer – and privately
In order to compensate for the pension gap, you should therefore make provisions beyond the statutory pension. This is possible with state-sponsored pension provision:
- through the employer with a company pension plan
- via the Riester or Rürup pension
Of course, you can also save and create assets as additional retirement provision – but without government support. Experts recommend, if possible, using 10 to 15 percent of your monthly net income for retirement provision in addition to the statutory pension.
1. The company pension plan
In a professional environment, a company pension plan (bAV) allows you to save a supplementary pension through your employer.
There are two options for company pension provision:
- Your employer bears the costs, which is then referred to as an employer-financed company pension scheme – which is always worth it for employees.
- The other option for BAV is that part of your gross income flows into a pension contract. This is called gross salary conversion.
With the second option, gross salary conversion, you should check whether your employer's offer is worthwhile for you. After all, since January 1, 2022, employers have been obliged to contribute a subsidy of 15 percent of the converted salary for certain contracts and under certain conditions. This is a significant improvement in the legal situation.
As an employee, you also benefit from tax savings and lower social security contributions when converting gross salary, as the contribution to the company pension scheme reduces your gross income. The downside: Due to your lower gross income, you also pay less into the statutory pension insurance. This means that they receive fewer earnings points and thus a lower pension. However, the tax and social security savings with the subsidy from the employer usually make up for the reduction in wage points.
In general, the company pension is subject to full income and social security contributions when the claims are paid out. However, there are now allowances and exemption limits for this.
2. Riester and Rürup pensions
Riester and Rürup pensions are state-funded retirement provision options. The state supports the Riester pension with allowances and sometimes also with tax savings through a so-called special expense deduction. The Rürup pension is supported exclusively through tax savings; here, too, this is referred to as a special expense deduction. You should check carefully whether one of the two products is worth it for you:
- The Riester pension is particularly worthwhile if you are eligible for support because of a low income or if you have children of your own. Because of high state allowances, especially child allowances, you then have to pay a lower contribution yourself. You can find more information about Riester pensions here.
The Rürup pension primarily focuses on self-employed people who do not pay into the statutory pension insurance. The reason for this is as follows: If you save Rürup, you can deduct the contributions from your taxes with your annual income tax return. The maximum amount changes every year; in 2024 it will be 27,565.20 euros for single people and 55,130.40 euros for married people.
If you are self-employed, you can deduct the entire annual Rürup amount from your taxes. If you are a permanent employee, you can claim the difference between the maximum contribution and your total contribution to the statutory pension insurance for tax purposes.
3. Make private provisions
Another option for making financial provisions for old age is private provision, which does not require state funding. Experts advise saving regularly and in the long term. Depending on your risk appetite, a bank savings plan with less risk or an investment fund savings plan with higher potential returns, for example with so-called exchange traded funds (ETFs), may be suitable. If you spend some time with ETFs, you can build up a decent amount of wealth with little effort. For example, if you pay 100 euros per month into an ETF savings plan over 20 years, you can save 36,677 euros – but you have only paid in 24,000 euros of that. The calculation assumes an average return of 4 percent. The final amount is made up of 24,000 euros in deposits and 12,677 euros in increase in the value of the shares.
If you deposit more, spend more time, or if the return is higher, the result can also be higher.
One way to improve your private pension provision is through capital formation benefits (VL), which some employers offer. For capital-forming benefits, as an employee you first look for a savings product to which your employer pays a monthly contribution in addition to your salary. Important to know: You must take the initiative and sign a contract for a savings product first. Only then does the employer pay the capital-forming benefit. You can usually choose between different forms of investment into which the capital-forming benefit should flow: Possible options include bank savings plans, capital insurance, fund savings plans, building savings contracts or other retirement or savings products.
