How does the pension system work?

The pension system in Germany is based on three pillars; statutory, occupational and private pension provision. Many people are probably aware that this system is not doing too well these days. Read here what the three pillars are all about:

Here is an overview of the three pillars:

1. Statutory pension provision
2. Occupational pension provision
3. Private pension provision

Statutory pension provision: Collecting points for all they’re worth

Statutory pension provision ends up not really being worth talking about, thanks to certain factors such as inflation, i.e. the devaluation of money. Roughly speaking, “pension points” must be accumulated, all of which have a certain value:

• Average earnings (< 60,000 euros gross / year): One point per year
• Below average earnings : Half point per year
• Above average earnings (> 60.000€ gross/year): Two points per year

The points are then added up to the pension and multiplied by the “pension value”. Here you can find the current formula for calculating the monthly pension amount:

Monthly pension amount = earning points x access factor x pension value x pension type factor

Here is a quick example to calculate the pension of an average earner:

Example: Average < 60,000 / year

Example (40 years of work):

• Pension points: 40
• Pension value current: ~ 34
• Standard age limit / pension type factor: 1

Monthly pension:

• 40 x 34 x 1 = 1.360 Euro

Factor source: German Pension Insurance.

However, it does not stop there. Even with this amount, all taxes and inflation must still be calculated. Factors such as tax, health and long-term care insurance must also be taken into account. Especially inflation hits your pension hard. Don’t you think? Here you can find an overview of the change in the inflation rate in Germany from 1992 to 2020.

You can find more statistics at Statista.

Occupational pension provision: Secondary cover as a solution?

The company pension scheme is an additional safeguard to the statutory pension scheme. It is considered a supplementary pension and is financed by the employer. Even with this, it is difficult to cover one’s costs in old age.

Private pension provision: Investment in real estate

Let’s move on to private pension provision. The first question that arises here is how do I invest my money and in which form of investment should I invest at all? Inflation is our biggest enemy when investing in a financial product, but it is our best friend when investing in real estate, as we have already described in the article Wealth Creation & Inflation.

Here briefly again in simply explained!

Investment form Financial product:

• 10,000 euros in a savings account are and remain 10,000 euros. Even if the money is only worth half in 30 years (inflation).

Investment form real estate:

• If you buy a condominium for 10,000 euros, the money in 30 years is only worth half, you get for your property 20,000 euros

As you can see well here, when you invest in a property, you are always very well protected against inflation and can also still make profits. Unfortunately, our pension is similar to the investment in a financial product – in the end, we all make a loss.

The next step: real estate as an investment

This article compares the classic investment of money in the bank with a capital investment in the form of real estate. Real estate creates “real value”. Find out what that means here!

Learn here about the benefits of investing in real estate for your retirement savings, too!

Understanding pensions and avoiding mistakes: Tips and tricks for more pension

Here you will find everything you need to know about pensions. With our video tips, you can really get smart and avoid mistakes when concluding the pension. Whether you’re a beginner or advanced, we’ll show you the best and most helpful videos.

Here’s another tip for you (external). What’s the best way to protect yourself from poverty in old age due to low pensions? The answer is: turning taxes into assets. Tax avoidance means building knowledge yourself. Online you can find a lot of (free) articles and tips on Lukinski.de: From real estate as an investment by renting to asset management to saving taxes with real estate (external). Everything free of charge from the expert.

Tip! Overview Wealth Building XXL – Book, Video, Tips & Tricks

If you want to build up private wealth and create financial reserves, there are a few things you should keep in mind. In addition to the tips you get in this article, you might also be interested in our extensive overview page. There you will find an overview of articles, as well as book and video tips with successful and helpful books and videos on the subject of wealth accumulation – including tips and tricks from professionals and experts.

• Book & Video Tips Overview: Wealth Creation XXL

The pension system

How does the German pension system work and what options are there to provide for retirement? This and much more you will learn in this video!

How much pension do you get?

You’ve always wondered how much pension you can expect later on? Learn in the video, based on an example how you can easily calculate your pension amount.

Pension information: What the numbers mean

Social security contributions (health insurance and long-term care insurance) and taxes may still be deducted from the gross pension. In this video, the information in the pension information is explained to you based on an example and clarifies what pension you can really count on. Net comes out significantly less than I imagine that many.

Calculate pension

The video shows you how the pension formula works and which decisive factors influence the pension amount.

This is how pensions are taxed

Whether it’s the statutory pension, benefits from a Riester contract or a company pension scheme, anyone who receives a pension these days will almost certainly have to pay tax on it. A big problem is that every year more pensioners become liable for tax and do not even notice this at first and are also obliged to file a tax return. Pensions are taxed in Germany, but there is no single rate for this, but for many forms of pensions there are separate rules. We have summarised these and tried to explain them simply – so that you do not experience any nasty surprises when you retire.

Avoid pension errors

Apply for a statutory pension. And it’s very simple. That’s what this video is about. You don’t get your statutory pension just like that. Here, too, you have to make an application. And as always, when you make my application, you can also make mistakes. How you do not make mistakes in your pension application and what options you have for applying for a statutory pension, you will learn in the video.

Tips for more pension

More pension from the statutory pension insurance? Who wouldn’t like that? In fact, there are a few ways you can boost your state pension. However, very few people have heard of these possibilities.

Investment option: Riester pension explained

There are various pension options. One of them is the so-called Riester pension. You can find out how it works and what it actually involves in the video.

Fear for the pension

Many people worry that there won’t be enough money in retirement. Everything is getting more expensive, but the pension level is falling. Many people do not have a private pension. Do we have to work until we drop? What is the best way to save for retirement?

https://www.youtube.com/watch?v=5_m142HVh3s

Further links

We have more helpful video and book lists for you on topics that might interest you. Below are some helpful links for you.

Retirement provision

The topic of old-age provision is one of the most important issues Germans are concerned about. Already at a young age, one is made aware of the need to provide for later. But how exactly do I do that? When do I start with the old-age provision? Which mistakes should I avoid? Where can I get tips? And why do I need a pension at all? We answer all these questions and more here.

• Video tips on the subject of old-age provision
• Book recommendations on the subject of old-age provision

Tax return

Why, why, why are tax returns so important? Not only professionals, but also students or pensioners can benefit from a tax return. If you have never deducted anything from your taxes and have no previous knowledge, you can get super informed in our tax return guide. We show you tips and tricks on how to avoid mistakes and provide you with tutorials that will help you with your first or next tax return. If you want to know even more, then we have a great article on the tax basics: income, sales & Co.

• Video tips on the subject of tax returns
• Book recommendations on the subject of tax returns

Buying real estate

With our book and video list on buying real estate, you can’t go wrong with your next real estate purchase. Our book tips cover all topics from the right inspection to the closing and the possible resale. What do you have to pay attention to? How do you finance your purchase? How do you evaluate a property? And how do you conclude the contract? You will find the answers here.

• Video tips on buying real estate
• Book recommendations on the subject of buying real estate

Invest successfuly

Successful investing is a dream of many people. But unfortunately, it is not as easy as it seems. How can you start as a beginner in the investment industry? What do you have to consider and which mistakes should you try to avoid? What is worth investing in? And what does the term “investment” mean anyway? We present you the best books on the subject of investment!

• Video tips on the subject of investment
• Book recommendations on the subject of investment

Advisor Wealth Accumulation XXL: Finance, Investment & Co.

Who wouldn’t like to build up their own assets? No matter whether you want to be able to afford something or would like to generate a financial buffer for old age, asset accumulation is a relevant and, above all, sensible topic for virtually everyone. But what options are there for building up assets? Life insurance, retirement planning, or investing in real estate? Here you will find an overview of articles, as well as book and video recommendations on the subject of asset building. From saving taxes to passive income to tips on successful investing – experts and professionals share their know-how in their videos and readings and answer all questions about wealth accumulation.

• Book and Video Tips: Wealth Building XXL