Working Life > Retirement Arrangements

Retirement Arrangements: Compulsory, Private, Company Pension

When we talk about retirement arrangements, it is about providing financial arrangements during one’s working life for the time of retirement. The aim is to avoid cuts in one’s living standard as pensioned pension. To provide this, there are 3 pillars in Germany:

• As an employee, you are being covered automatically by the compulsory Pension Insurance. As a freelancer you are allowed to insure yourself on a voluntary basis. Since it does not generate yields, the Pensions insurance is however no insurance in the normal sense. This insurance is based on the generation’s contract. That means that the current contributors have the right to receive a certain part of future earnings. They have no right to get back the amount of money they once contributed
• Company Plans including direct insurances, pension funds, pension promises, relief funds and additional insurances (ZÖD)
• Private insurance: shares, equity funds, bonds, life insurances, property, private pension insurance

Due to the demographic change it has become harder for the pension insurance to disburse all payments. One has to take declining pension payments (inflation-adjusted) into account. In the future the governmental pension insurance will only be able to provide the basic demands. To remain one’s current standard of living, one will be forced to spend about 80% of one’s net income. The governmental pension insurance can not provide this. This is how the so-called “pensions gap” is generated.

To provide proper financial arrangements for the time of retirement I is necessary to take further pension insurance possibilities, as it has recently also been stated by the legislator. This is why the different models of company pensions or company pension schemes have been supported by the tax advantages caused by the so-called Riester-Rente.

• Collect information about various ways of pension insurance
• Analyse your financial circumstances and your needs by the time of retirement:
  • How should your retirement standard of living look like? Do you want to insure yourself against the risk of reduction in earning capacities? Do you want your partner or your children to receive surviving dependants´ pension?
  • How much of your current income can you save for pension insurances?
  • Please also consider that the current situation can change dramatically: starting a family, unemployment, disability
• According to your analysis, decide whether a private or internal pension insurance makes more sense for you. Consider mixing your possibilities
• Collect independent and individual information at consumer advice centres. Don´t forget: Make an appointment, bring along your documents
• Get yourself another opinion from so-called insurance agents. These people do not offer you any contracts. This means that they are not working on a provisional basis but on the scale of charges and fees
• Check regularly to what extent your pension insurance is still suitable to you. Take the annually published „Renteninformation“ by the „Deutsche Rentenversicherung“ as a basis of your analysing process
• Alongside other aspects of pension insurance, you should decide where you would like to live in the future and how you would like to remain physically and mentally healthy
• The younger you are the lower your trust in the governmental pension isurance should be. The age pyramid is enough proof for the failure of this insurance: Too many old people meet not enough young, working people
• Care about your pensions as soon as possible, and try to build up the different pillars