Undervalued advantages of the Rürup pension scheme.
As of January 1, 2022, Riester pensions will become less common, raising questions about alternative options for retirement savings. One such alternative is the Rürup pension, also known as the Basisrente.
The Rürup pension offers several advantages, particularly in terms of tax deductibility and protection. Contributions to a Rürup pension are tax deductible as special expenses (Sonderausgaben) up to a certain limit, making it attractive for self-employed persons and freelancers who cannot benefit from Riester pension subsidies. The income tax benefit can be significant because the contributions reduce taxable income.
Another advantage of the Rürup pension is its protection against insolvency. The Rürup pension capital is protected from seizure by creditors in case of personal bankruptcy, providing a secure long-term retirement provision, especially important for self-employed individuals with higher financial risks.
Rürup pensions come in various forms, including classic pension insurance, hybrid guarantee policies, pure fund policies, and ETF savings plans. The tax advantage for Rürup pensions will increase from 92% to 100% by 2025.
Despite initial criticism, the Rürup pension has several advantages, including a compulsory conversion and the fact that one cannot access the money before retirement. Rürup pensions are paid out for life, regardless of the retiree's age. Up to 25,787 euros per year for singles and 51,574 euros for married couples can be claimed for tax purposes with Rürup pensions. Survivors can also be secured with Rürup pensions.
Occupational pensions (Betriebsrente) are another alternative. These employer-supported schemes for employees offer a route to supplement retirement savings. However, the occupational pension scheme (bAV) through salary conversion has not gained significant traction due to various weaknesses.
Private pension provision, involving individual investment choices like equity funds or real estate, is another route for retirement savings.
The Pan-European Pension Product (PEPP) launched by the European Union currently enjoys no tax advantage in any country.
The current federal government had planned a reform of the Riester pension and capital-based pension schemes, but no action has been taken. The low and sometimes negative interest rates have caused the statutory gross contribution guarantee of Riester products to become unachievable for insurance policies, leading to Riester products from fund companies disappearing from the market.
Long-term interest rates driven by the European Central Bank have caused the maximum interest rate of German life insurers to be reduced to 0.25 percent. As a result, the Rürup pension has become a more viable alternative for those seeking a tax-advantaged retirement plan with insolvency protection.
In summary, the Rürup pension is a suitable alternative for self-employed and freelancers who want a tax-advantaged retirement plan with insolvency protection, while Riester pensions are more suitable for employees paying into social insurances and families with children. Occupational pensions and private investments offer other routes to supplement retirement savings in Germany.
Personal-finance consideration for self-employed persons and freelancers who cannot benefit from Riester pension subsidies might find the Rürup pension attractive, as contributions to it are tax deductible as special expenses (Sonderausgaben). The Rürup pension's protection against insolvency also makes it particularly important for self-employed individuals with higher financial risks.
