When working as an expat in Germany, you start contributing to your old-age pension right at your first paycheck! So let’s take a look at how the German pension system works, what you need to know and zoom in on some of the retirement scenarios expats might find themselves in.
In Germany, the current retirement age is 67. Up until that time, you’ll probably be working your butt off. Thankfully, the German pension system has a mandatory pension contribution that amounts to 18.6% of your gross income every month (2020), called the Gesetzliche Rentenversicherung. Don't worry, your employer meets your contributions halfway, so you both contribute around 9.3%. So, the way the system works is that everyone contributes, and those contributions, as well as the investments the pension funds, pay for the current retirees’ pension payouts starting once you hit age 67.
This sounds really good, but since there have been fewer and fewer children being born these generations, it means fewer and fewer people will be hitting the German work market (good for us expats, though). As you can imagine, this sees the pension coverage dropping further and further over the years. There will simply not be enough people working to support the system. The German government knows this, so it’s common to practise to supplement your mandatory pension savings with extra voluntary or private pension scheme. So, as an expat what are you to do? Let’s take a look at both scenarios.
Once you get your permit and job, you, too start making contributions to the pension system! The contributions are identical, but there are a number of things you need to know:
First of all, an expat, needs to contribute anywhere between 3-5 years before you’re actually eligible to any coverage by the pension plan (and some of the others). So there’s a window of time where you’re not covered by the state insurances, during which it’s a good idea to make sure you’re covered by private insurance for the time being.
If you only work in Germany for a relatively short time, so shorter than those 3-5 years required to become fully eligible for coverage, you’re entitled to a refund of your side of the monthly pension contributions. You can also do this if you’ve contributed for much longer, but this does mean, however, that you won’t be able to claim any german pension later in your life. For some people this might be a good idea, depending on where you’re going next, but we recommend you get a professional to help you do the math on this if you’re considering it.
So, you’re in it for the long haul! You’ve got your citizenship and plan to live and work in Germany for the rest of your life. Sehr gut! In that case, you might run into the fact that you’ll contribute to the pension scheme for at least 35 or even 45 years! That’s extra good news, because that entitles you to early retirement at age 63.
What you have to remember is our story from before: there aren’t enough people to support the pension plans by the time our generation is looking at retirement. So, that part of where the German government is encouraging people to make voluntary contributions to an extra pension plan or even to take out an additional private pension plan: this now applies to you.
Thankfully, the German government is sponsoring these contributions with a variety of tax measures! These are, as you can imagine, quite complicated. So, instead of my giving you a very rudimentary explanation, it’s a better idea for you to find out more from a professional who can do the pension math required to see which pension construction will be best for you depending on how much you’re earning, your health and other factors that might influence the amount necessary to see you comfortably live out the rest of your golden years!
The other option is that you’ll spend only a part of your career in Germany. That means you’ll be building up, let’s say, 15 years of pension contributions before moving on to a career opportunity in another country. But what will happen to the pension you’ve built up in Germany?
Flash forward, and you’ve worked across multiple countries in the EU, including Germany. Good news! While your contributions will be different across the varying countries, you will still be entitled to your German pension at the specified retirement age! To gain access to any pensions you’ve built up inside the EU is a fairly simple process. To receive your pension, you simply apply for it at the pension authority of the current (or last) EU country that you worked in. It’s then up to the pension authority of that European nation to process your application, including gathering pension records from other EU nations.
Make sure you apply well on time, though, as chasing after all this information can take a few months.
Also, make note of different retirement ages in different EU countries. If you’ve worked in country A where the retirement age is 65 and worked in country B, where the age is 67, you won’t get your country B portion of your pension until you turn 67. Take this into account, as it might mean you come up short if you decide to fully retire at 65.
If you’re collecting your German pension from outside the EU, that’s entirely possible! Thankfully, Germany has signed mutual social security agreements with various countries from all over the globe, making it easier than ever to collect your pension from abroad. You simply need to apply to the German government for your pension. If everything is in order, you will receive your pension on your bank account from a German bank. To do so, they will use the most economical way of transferring the money to you and convert it into the relevant currency. The German state will pay for transfer fees, but any bank charges, conversion fees or losses based on the exchange rate are paid by you, as the beneficiary.
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