Difference Between Taxes on Public and Private Retirement in Germany
(Comparison: statutory vs. private retirement provision – taxation)
| Type | Short description |
|---|---|
| Statutory pension (gesetzliche Rente) | Retirement pension from the mandatory statutory pension insurance system (GRV). |
| Private retirement provision (private Altersvorsorge) | Voluntary private plans such as Riester, Rürup, company pension schemes (Betriebsrente), private life and pension insurance, etc. |
| Aspect | Statutory pension (GRV) | Private retirement provision |
|---|---|---|
| During working life (saving phase) | Contributions to the statutory pension insurance are generally taken into account for tax purposes automatically via payroll and can be deducted as special expenses. | Some products are tax-deductible (e.g. Rürup), others are not or only partly (Riester mainly via allowances). |
| At retirement (payout phase) | Pension payments are partly taxable – the taxable portion depends on the year in which you start receiving your pension. | Pension payments are fully or partly taxable, depending on the product (e.g. Riester/Rürup fully taxable, classic life insurance only partly). |
| Taxable share in retirement | The taxable share of the statutory pension increases gradually and will reach 100 % in 2040. | Rürup and Riester pensions: generally 100 % taxable. Capital life insurance: usually only half of the profits are taxable if certain conditions are fulfilled. |
| Capital gains tax | Not applicable, since statutory pensions are regular income payments and not realised capital gains. | Applies to investment profits (e.g. ETFs, investment funds): profits are subject to capital gains tax. |
| Tax allowances | A so-called pension allowance (Rentenfreibetrag) applies, its amount depending on the year you first receive your pension, and it is then fixed for life. | For investment income, the saver’s allowance (Sparerpauschbetrag) applies (e.g. 1,000 € per year for single taxpayers). |
| Health insurance in retirement | Yes – contributions to health and long-term care insurance are usually deducted automatically from the statutory pension. | For company pensions (Betriebsrente), health and long-term care insurance contributions are also generally payable and deducted from the benefits. |
| Item | Statutory pension | Private pension (e.g. Riester) |
|---|---|---|
| Annual retirement income | 18,000 € | 6,000 € |
| Taxable percentage | 85 % | 100 % |
| Taxable portion | 15,300 € | 6,000 € |
| Subject to income tax? | Yes | Yes |
These taxable amounts are included in the income tax calculation and taxed at the retiree’s personal income tax rate.
| Type | Tax deduction while saving | Taxation when paid out | Notes |
|---|---|---|---|
| Rürup pension (basic pension) | Yes – contributions are deductible as special expenses up to statutory limits. | Payments are 100 % taxable (rising taxable share depending on retirement year, up to 100 % in 2040). | Attractive for self-employed persons – early lump-sum withdrawal is usually not possible. |
| Riester pension | Partially – mainly via state subsidies and limited extra deductions. | Pension benefits are fully taxable (100 %). | State-subsidised product, especially interesting for families and employees paying into the statutory pension scheme. |
| Company pension (Betriebsrente) | Yes – contributions are often made from gross salary and can be free of tax and social security contributions up to certain limits. | Benefits in retirement are generally fully taxable and subject to health and long-term care insurance contributions. | Organised through the employer; tax advantages during the saving phase may be offset by taxation and social security contributions in retirement. |
| Capital life insurance (Kapitallebensversicherung) | Often no direct tax deduction in the saving phase. | Under specific conditions, only 50 % of the profit is taxable. | Conditions: contract duration of at least 12 years and payout only after reaching the age of 62. |
| Private investments (ETFs, funds, etc.) | No tax deduction for contributions. | Profits are generally subject to 25 % capital gains tax (plus solidarity surcharge and possibly church tax). | The saver’s allowance (Sparerpauschbetrag) (e.g. 1,000 € per year for individuals) reduces the taxable amount of investment income. |
| Key point | Statutory pension (gesetzliche Rente) | Private retirement provision (Riester, Rürup, etc.) |
|---|---|---|
| Taxation of benefits in retirement | Pension is partly taxable, depending on the retirement year. | Benefits are fully or partly taxable, depending on the type of contract. |
| Tax deduction while working | Contributions are considered automatically via payroll and tax returns. | Only some products (e.g. Rürup, company pension) offer significant tax deductions. |
| Health insurance in retirement | Contributions for health and long-term care insurance are automatically deducted from the statutory pension. | Deductions can also apply to certain private pensions, particularly company pensions (Betriebsrenten). |
| Flexibility | No early access to the statutory pension – very inflexible. | Some private products offer greater flexibility (e.g. capital option, partial payout, tailored contract design). |
Editorial note:
The editorial team of this website aims to provide accurate and well-researched information by consulting a range of reliable sources. Nevertheless, mistakes may occur or certain details may not always be fully confirmed, and legal provisions can change over time. Therefore, the information presented in these articles should be regarded as an initial, non-binding guide only. For binding, up-to-date and case-specific advice, please always consult the relevant authorities or qualified professional advisers.
