Undervalued Advantages of the Rürup Pension Scheme
The Rürup pension, or Basisrente, in Germany offers a significant alternative to the Riester pension, particularly for self-employed individuals and freelancers who are not eligible for Riester plans. Here's a closer look at the key advantages of the Rürup pension:
- Tax Deductibility of Contributions: Contributions to the Rürup pension are tax-deductible as special expenses, up to a certain yearly limit. Starting from 2025, 100% of contributions will be tax-deductible, providing substantial income tax reductions during the contribution phase [1].
- Tax Benefits During Accumulation: While contributions reduce taxable income, pension payouts during retirement are subject to income tax but typically at a lower tax bracket due to lower retirement income [1].
- Guaranteed Lifelong Payouts: The Rürup pension guarantees a lifelong annuity payout to the insured, offering security against longevity risk [1].
- Survivor Protection: Many Rürup contracts offer options to include survivors’ pensions, ensuring financial protection for spouses or dependents after the pension holder’s death [1].
- Variety of Types: The Rürup pension is available in various forms, including classic life insurance-based models and fund-linked (investment-oriented) contracts, allowing customization according to risk preference and investment outlook [1].
- Insolvency Protection: Rürup pension entitlements are generally protected from insolvency claims, providing an additional safety net for the insured’s retirement savings [1].
In contrast, the Riester pension primarily targets employees and individuals covered by social insurance, with state subsidies and allowances as key benefits. The Rürup pension is more suitable for those seeking primarily tax deductions and a pension designed for self-employed persons without access to social insurance benefits [1].
Other alternatives to the Riester pension in Germany include occupational pensions (betriebliche Altersvorsorge) and private savings invested independently in assets like equity funds or real estate. However, these options lack the specific tax advantages of state-subsidized products [1][2].
The Rürup pension stands out due to its tax-deductibility, lifelong pension payout, survivor benefits, insurance protection, and flexibility in product types, making it a robust alternative for retirement savings for specific groups in Germany [1].
It's worth noting that the Pan European Pension Product (PEPP) has been launched by the European Union, but it currently enjoys no tax advantage in any country.
As of January 1, 2022, the Riester pension will hardly be offered anymore, and Riester products from fund companies are disappearing from the market due to low and sometimes negative interest rates. The current federal government has planned a reform of the Riester pension and capital-based old-age provision since the 2017 coalition agreement [1].
In conclusion, the Rürup pension offers a valuable option for those seeking a flexible and tax-efficient retirement savings plan in Germany, particularly for the self-employed and freelancers who are not eligible for Riester plans.
[1] Source: Finanztest.de [2] Source: Deutsche Welle
- For the self-employed and freelancers in Germany who are not eligible for Riester pensions, the Rürup pension could be a suitable alternative in personal-finance and wealth-management, offering tax deductibility, lifelong pension payouts, and insurance protection compared to other retirement savings plans.
- In the realm of business and finance, the Rürup pension's advantages, such as tax deductibility, lifelong payouts, survivor protection, and variety of types, make it a robust choice for retirement savings, providing a significant alternative to the Riester pension, particularly for those outside the employee and social insurance categories.
