The “basic pension” (named after its “inventor” Prof. Rürup and also known as the Rürup pension) is part of the 1st layer of the German pension system. Unlike the public German pension insurance (DRV), basic pension provision is not obligatory. However, it has been set up legally very similar to the DRV. Above all, only pensions can be paid out – no pay-outs of the invested capital are possible! While this may sound like a negative parameter, it also means that the money invested into the Rürup pension is protected… against yourself if you feel like doing something stupid or if you fall into hard times and have creditors chasing you and foreclosing on your other assets – they can’t touch the Rürup pension capital, it is always safe for you until you reach retirement. Pensions can be paid out from the age of 63. So, such an “inflexibility”, as some see it, has its pros and cons.
The Rürup pension was set up in order to allow the self-employed a similar pension saving like in the public pension (to which they usually cannot contribute). But high-earning employees and public servants as well as people occupied in special areas like lawyers, architects and doctors, where the guild of their professions offers special pension systems, can use Rürup pension plans to save extra monies into their pension planning with tax subsidies.
Contributions to the basic pension scheme can be deducted from tax at an annual rate (100 percent as of 2025). Currently in 2018, this is 88% of a maximum of 23,362 EUR for a single person and 46,724 EUR for married couples. This means you can currently write off 88% of your investments against your income and thus save the taxes you would have had to pay on this share of your investments. And the percentage increases by 2 percentage points every year until you can write off 100% of your contributions in 2025.
For employees, however, ongoing compulsory contributions to the DRV are deducted from the total amount. So, employees often find that they can only invest a far lower yearly amount into the Rürup pension.
Example: A pensioner who retired in 2015 has to pay tax on 70 percent of his pension for life. A new pensioner in 2020 will then be subjected to a permanent rate of 80 percent. The main difference to DRV is the real capital cover. Basic pensions are saved in the form of a pension assurance. The life insurer keeps the savings contributions on a personal account in an insurance contract. Therefore they offer serious planning security for the investor as they offer guaranteed pension payouts.
Basic provision is the privately organized form of DRV. If you leave Germany before retirement, your assets will continue to be managed free of charge. It is not payable; it can only be paid out as a pension at the start of retirement.
TIP: The advantage of occupational disability insurance:
Contributions to an occupational disability insurance (one of the most important forms of income protection in Germany) can usually not be deducted as expenses from your taxes.
However, if you set up a plan where 49 percent of the contributions are used for supplementary insurance, e.g. in the event of occupational disability or inability to work, within a Rürup pension plan the full monthly premium can be written off in your tax declaration. This is a very attractive form of tax savings for all those who have understood that contributing to an income-protection plan is important for their financial planning and to protect their families, just like a life insurance can be. CR&Cie. calculates individually in each case whether or not this has a tax and pension impact.
TIP: In Germany, high commissions usually accrue when you take out a basic pension. This will usually create a hefty financial disadvantage for you if you are staying in Germany for a limited period of time. Or in any other cases as well, due to the loss of compound interest from the commission costs deducted from your investments in the first couple of years. For this reason, CR&Cie. can also arrange for basic pensions to be provided on request as so-called “Netto-Plan” where there are no inherent commission costs that diminish your savings. Instead you’ll pay a reasonable direct fee to CR&Cie., which is always far lower than the commission cost you’d otherwise incur.
QROPS TIP: Rürup pension contracts can also be used for QROPS transfers if you want to transfer your British pension insurance policies to Germany. We are happy to help with this together with our British QROPS experts.