German private pension plans: How to choose between Riester and Rürup?

Table of contents

1. The Rürup pension

2. The Riester pension

3. Comparison between Riester and Rürup: Which plan to choose?

4. What criteria should French expatriates consider?

As an expatriate, you have probably already heard about the Riester and Rürup plans for preparing for retirement. The Riester pension and the Rürup pension are two forms of private retirement plans subsidized by the German government.

The goal of these two plans is to supplement the state pension, which is clearly insufficient for living. However, these plans function differently and cater to specific needs.

As an expatriate, your choice depends on various factors: professional situation, family situation, and financial goals. Here is a comparison to help you make the best decision.

1. The Rürup pension

The Rürup pension, also known as "Basis Rente," is subsidized exclusively through tax advantages. It is intended for anyone who pays taxes: employees, self-employed individuals, freelancers, entrepreneurs, etc.

The Rürup pension is particularly attractive due to its tax advantages. Contributions to this pension are deductible from taxable income, providing a tax return. Contributions are capped at a maximum amount, and withdrawals can be made from the age of 62 in the form of a lifelong annuity.

Contributions to the Rürup plan are tax-deductible up to €27,566 for a single person and €53,131 for a married couple (2024 amounts, adjusted annually). This plan is particularly beneficial for those with high incomes seeking to maximize tax savings.

Another aspect of this plan is that the pension can only be paid as a monthly lifetime annuity. You cannot access the money or transfer it during the savings phase.

Finally, the Rürup plan can be invested in investment funds, offering potentially higher returns than the Riester plan but with associated fluctuation risks.

2. The Riester pension

To fully benefit from this subsidy, at least 4% of gross income, after deductions, must be contributed to the contract annually during the payment phase. The minimum contribution is €60, with a maximum of €2,100 per year.

With this pension, you benefit primarily from annual state allowances, amounting to €175 for the saver and up to €300 for children. Therefore, the Riester pension is also attractive for families with children, but it is also suitable for single people or those with low incomes.

The Riester pension can be accessed from the age of 62. Payments are 100% taxable at the individual tax rate. However, savers can also withdraw up to 30% of the capital in the form of an immediate annuity, which is also taxable as income.

Another feature of the Riester pension is its flexibility. The accumulated capital can also be used to purchase a property for personal use. Funds saved with a Riester pension contract are also protected in case of social aid (Hartz IV) and can be passed on to heirs.

Finally, the funds invested in the Riester pension are guaranteed, making it a safe choice for cautious investors. However, this security limits the potential return.

Note: Expatriates should be cautious, as leaving the European Union before retirement could lead to the loss of government subsidies.

3. Comparison between Riester and Rürup: Which plan to choose? 

Criteria	Riester plan	Rürup plan
Profile	Large families and low incomes	Anyone who pays taxes
Tax advantages	Allowance and deduction up to €2,100	Deduction up to €27,566 (single) and €53,131 (married)
Capital security	Guaranteed capital	Possible investments in stocks
Retirement payment	Pension and partial withdrawal option	Lifetime pension
Residence conditions	Optimal if residing in Germany	Beneficial even for non-residents

4. What criteria should French expatriates consider? 

• Lowering your taxable income in order to receive the "Elterngeld".

• Investment flexibility and returns: Profiles with a higher risk tolerance and seeking better returns may prefer the Rürup plan, which offers more flexible investment options.

Conclusion 

These two schemes will allow you to take advantage of the best tax options available in Germany. It is important to be guided by an advisor to structure solutions tailored to your household.