In Germany, retirement provision is based on three pillars: the statutory pension, occupational retirement provision and private pensions. BaFin is not responsible for supervising all forms of retirement provision. The statutory pension scheme, for example, is not subject to BaFin’s supervision. Some sponsoring undertakings of occupational pension schemes are supervised by BaFin, as are providers of life insurance, private pension insurance and equity funds. Comprehensive information in German about all aspects of retirement provision can be found on the independent website Ihre Vorsorge.

Statutory pension

The statutory pension forms the basis of most people’s retirement provision. Alongside salaried employees, some self-employed persons are also covered by statutory old-age pensions insurance as a form of compulsory insurance. The self-employed can also voluntarily make contributions to the statutory pension insurance system.

The amount of pension payments actually received depends on how long the recipient paid into the pension system and on how much they earned. Those covered by statutory insurance receive an annual calculation of their expected pension, which is based on the contributions they have made so far, from Deutsche Rentenversicherung, Germany’s statutory pension insurance provider.

Due to demographic developments, the statutory pension system is coming under increasing pressure. Pensions are increasing, but not at the same pace as salaries. The gap between salaries and pensions is growing, and without additional occupational or private pension provisions, pensioners will not be able to maintain their standard of living in retirement.

Occupational retirement provision

Occupational retirement provision schemes offered by employers (also referred to as occupational pension schemes) allow employees to save towards an occupational pension in order to supplement their statutory pension. There are various legally defined ways for employers to provide occupational retirement benefits. Employers are free to choose which of these options they use.

One popular form of occupation retirement provision is direct insurance via deferred compensation. The employer takes out a life insurance or pension insurance policy for their employee. A portion of the employee’s salary alongside employer contributions are used to pay the premiums.

Employees have a legal claim to deferred compensation. In addition, if occupational retirement provision is arranged via a Pensionsfonds, a Pensionskasse or via direct insurance, the employer must subsidise deferred compensation with a contribution of 15% if the deferred compensation results in social security savings for the employer.

Private pension insurance

For most people, additional private insurance is indispensable. There are numerous options available: alongside classic private life insurance and pension insurance products, individuals can invest in equity funds, ETFs and other financial products, in addition to real estate.

All of these products have advantages and disadvantages. The suitability of each product depends on your personal situation and individual investment strategy. Before investing, you should therefore familiarise yourself with the basic principles of investment and consider not only the opportunities of various forms of investment, but also their risks. One of the most important principles is: the higher the prospective returns, the higher the risk of loss.

It is also important to look into the topic of retirement provision at a young age. While it is never too late to make provisions for the future, the earlier you start, the lower the monthly contributions will be that are needed to close your own pension shortfall.

Riester pensions

Riester pensions are state-subsidised private pension products. With Riester pensions, the state pays subsidies if you spend a portion of your income or assets on your retirement provision. There are also tax advantages.

There are different kinds of Riester contracts with varying potential returns. As a general rule, you are guaranteed to receive the contributions paid alongside the state subsidies when you retire. There is therefore no risk of losing the capital invested.

Riester pensions are primarily aimed at employees, and in particular at savers who value security and want to know when they enter into a contract the minimum amount they can expect to receive in retirement. A Riester pension may be a good option for low-income families. Those who earn less can pay lower contributions but still receive the same subsidies as higher earners. There are also additional subsidies for children.

For the self-employed, a Rürup pension can be an alternative to Riester pensions.