The undervalued advantages of the Rürup pension.
In the ever-evolving world of retirement savings, Germany is witnessing a shift in focus from the Riester pension to the Rürup pension, commonly known as the basic pension. This change is primarily due to the dwindling availability of Riester products from fund companies, a result of low and partly negative interest rates.
The Rürup pension, initially met with a less-than-favourable reputation when introduced in 2005, has become more attractive in recent years. It offers several distinct advantages that make it an appealing choice for retirement savings.
Tax Deductibility
One of the most significant advantages of the Rürup pension is the tax deductibility of contributions. Contributions up to a certain annual limit (for example, €24,000 for singles in 2022) are tax-deductible, reducing taxable income significantly. This makes it especially attractive for self-employed persons and freelancers who do not qualify for Riester subsidies.
Target Group
Unlike the Riester pension, which mainly benefits employees who pay into social insurance and offers better incentives for low-income earners with children, the Rürup pension is designed for self-employed individuals and high earners without children, broadening access to tax-advantaged retirement savings.
Flexibility with Investment
The Rürup pension can be combined with modern investment options such as ETFs through specific providers, allowing for potentially higher returns with diversified portfolios managed by robo-advisors. This feature makes the Rürup pension a cost-efficient and automatically rebalanced investment option.
No State Subsidies, but Strong Tax Benefits
While the Riester pension provides direct government subsidies, the Rürup does not, but the tax savings on contributions can be substantial, helping reduce the tax burden during the working years.
Other alternatives for retirement savings in Germany include occupational pensions (bAV) and private pension provision.
Occupational Pensions (bAV)
For employees, company pension schemes provide a reliable additional retirement income, often with employer contributions and some tax advantages. Various forms include direct insurance, pension funds, or provident funds, with different risk and return profiles.
Private Pension Provision
Investing independently in assets such as equity funds or real estate without binding to specific pension contracts offers full flexibility but lacks the tax advantages of Rürup or Riester plans.
In summary, for self-employed or those not benefiting from Riester subsidies, the Rürup pension stands out primarily due to its tax deductibility of contributions, suitability for high earners, and combination with modern investment tools like ETFs for retirement savings in 2022 Germany. The Rürup pension also offers protection against insolvency, Hartz IV, and attachment.
When it comes to self-employed individuals or those who don't qualify for Riester subsidies, the Rürup pension emerges as an appealing choice for retirement savings, given its tax deductibility of contributions, compatibility with modern investment options like ETFs, and benefits for high earners without children, in contrast to the Riester pension that mainly benefits employees.
In the realm of personal finance and wealth management, the Rürup pension offers a unique advantage compared to occupational pensions (bAV) or private pension provision, as its tax savings on contributions can significantly help reduce the tax burden during the working years, while other alternatives lack the tax benefits and automatic rebalancing features that the Rürup pension provides.
