BASISRENTE or RüRUPRENTE

Intro

Let us start this article with a big learning for me personally.

Before starting to work on this article my motivation was on level 0, but since I put the task in my calendar I just started. Without emotions, without thinking of an alternative.

You know that this is exactly the same feeling we have when thinking about starting to save and invest our money?

But you have to start regardless of your motivation, this responsability is in your calender every day, it is important. You can start imperfect, but start!

And yes while writing these lines, motivation is coming to me. So will the motivation of saving start to come to you.

This financial tool called ''Basisrente'' is part of my own pension strategy, so it is something I have studied quite a bit. :)

To give you an overwiew of my profile:

1. I never lived and worked long enough in a country to really build up a pension
2. Taxes are my enemy so I need to save them ;)
3. In Germany freelancers and entrepreneurs are not contributing into the state pension, so we need to provide on our own.
4. I'm gratefull when I know there will be a lifetime pension that will covers my expenses if I will be to vulnerable to keep hustling.

Have you ever heard about the "Drei S?ulen System der Altersvorsorge"?

Here we go:

It is a combination of pension plans that should be able to close your pension gap in older age. Because in Germany even if we are making a good living we need always to provide on our own to be able to maintain our standard of living in old age. After making 7100€ per month brutto, no more money is being taking into account for your own pension.

Thats why pension plans as Riester and BAV (pension plan where your employer contributes) exist. One pension plan will not cover all you need. So here the combination is key. Private Vorsorge can be anything, from a ETF Saving plan or even providing with real states. The magic is in the mix!

If we need to categorize the Basisrente/Rüruprente, it will find a home with the "Gesetzliche Rentenverischerung".

The Basisrente is the little sister of our statutoy pension.

Where does the name "Basis/Rürup" come from?

"Basis" because it is equaliy to the statutory pension that is our regular basis of our pension fund.

The "Basisrente" is colloquially known as the "Rüruprente" named after the economist Bert Rürup that brougth this system to live, was introduced in Germany in 2005 as a tax-privileged form of private pension provision. It thus joined the ranks of occupational pensions, the Riester pension and the "classic" private pension insurance. (Image above)

How does Basisrente work

It is a voluntary private pension plan . A life-long annuity is paid - regardless of whether the insured person reaches the age of 80, 90 or 100. Surpluses generated by insurance companies can increase the contractually agreed pension. The payment of contribution rates for the basic pension can be individually adjusted to one's own requirements and possibilities: For example, contributions can be paid in monthly, quarterly, semi-annually or annually during the accumulation phase.

Flexible extra payments can be made to take full advantage of the tax incentive framework (this allows special income to be used specifically to increase the old-age pension). And a flexible agreement of the payout and accumulation phase is also possible.

The earliest age that you can get the pension out is at 62, but of course then the monthly pension income would be a little less.

There are severel carateristics and tools inside the Basirente that you have to watch out for!

1. The "Basisrente" ("Rürup pension") with and without survivor protection. (Hinterbliebenenabsicherung) The less you insure for your survivors, the more pension will come out for yourself.

In the consultations it is important to talk about survivor protection if you have family that is financialy vulnerable (homeworking spouse or kids that are still in shool).

If no supplementary agreements have been made to cover surviving dependants, such as the spouse, registered partner and children, no benefit is paid to them in the event of the death of the insured person!

However, a survivor's pension can be included as an additional module in the Rürup pension.

What does survivor's pension mean?

The "pension due to death". This refers to the pension that a spouse, registered partner or minor child or child still in education (up to the maximum age of 25) receives upon the death of the insured partner/parent.

2. Basistente with investment.

A solution for pension savers who are more willing to take some more risks, as the contributions paid in are invested in equity or investment funds or ETF. From the start of the pension, the value of the pension capital saved up to that point is determined and invested during the pension payment period as with a classic pension insurance.

When the contract is concluded, the insurer guarantees a factor for determining the lifelong pension from the pension capital. This factor indicates how much pension is paid for every 10,000 euros of capital. The pension amount is only guaranteed from the start of the pension.

The amount of the subsequent pension depends on the performance of the funds or the stock market. If you want to avoid the risk of loss, you can agree a guaranteed benefit. In this case, part of the contribution is used to ensure that the contributions paid in up to that point are available in any case when the pension begins.

Financial Insider: For me it is a no brainer, I would always go for a model with mutual funds or ETF (my preference to keep the investment costs low for the client). Imagine starting the pension in your thirties, getting the same amount I saved during 30 plus years is not an option at all. We need the investment to make the money grow and protect it from inflation.

Financial Insider: The contributions paid into the basic pension are also Hartz IV-protected and protected in the event of unemployment. Neither the employment agency nor the social security office nor any creditors have access to them like in many other cases!!

Achtung! A Rürup pension cannot be terminated; only a premium waiver is possible. A payout before the contractually defined retirement date is generally excluded by law. Earliest retirement option is 62. Regular retirement option 67 for our generation.

Can I save taxes with Basisrente?

YES, Taxes savings is a state subsidity.

The state promotes the "Basisrente'' by making the contributions tax-deductible. The contributions paid in can be deducted as "Sonderausgaben" on the income tax return. The Rürup contributions can be claimed from the tax office on the tax return form.

How to use the tax advantages correctly: The maximum tax benefit is always based on the currently valid tax deduction and your personal tax situation and not exclusively on the amount of the pension contributions paid in.

This year Pension contributions can be tax-deductible up to 92% as a special expense, this amount increases every year to 2%. That means, at the year 2040 the Basisrente can be 100% tax-deductible. Up to €23,724 for single & €47,448 for married. The minimum contribution to the basic pension varies depending on the provider and of course on your monthly budget :)

Initially, the "Basisrente" was developed primarily for the self-employed and freelancers who do not pay into the statutory pension. However, the "Basisrente" is also a good retirement provision for many other pension savers. In principle, the Basisrente is of interest to all those who are paying income taxes and have their residence in Germany.

Financial Insider: open your "Basisrente" with an amount that you are comfortable to invest per month. Especially when working with ETF and mutual funds it is good to take all ups and downs. Make yearly payments into your "Basisrente" to apply for tax purposes.

How can I use my investment?

Normally, the payment of the "Basisrente" starts with the start of personal retirement. Theoretically, you can have the pension paid out at the earliest from the age of 62. Once the pension starts you get a life-long monthly pension.

Financial Insider: The longer you live the more you get out of your investment.

What if I move out of Germany?

I often hear: "What actually happens to the pension if I want to live abroad?" The "Basisrente" will be paid out without problems even with if you move abroad! Important is to cosult your tax advisor to fugure out how to tax the "income".

If you move out of Germany before pension you will get your investment on a monthly base at the same time you start your regualr pension.

Contributions can be stopped when moving abroad.

Most important characteristics

• Pension for a lifetime
• Definately the biggest characteristic and advatages are the tax savings during investment period
• It is not possible to take out any money or capital out before pension (earliest 62)
• Your investment will be payed out monthly. (but for lifetime)

Insured persons can set up survivor protection when providing for others.This makes the "Basisrente" inheritable and the surviving dependants receive the money invested to date with a monthly pension.

Before you take "Basisrente" into your investment strategy, please consult your financial advisor. If you have further questions I am happy to help.