A Data-Driven Analysis of Supplemental Company Pension Investment in Germany

As a high-income earner in Germany working for a company that already provides a generous pension plan (betriebliche Altersvorsorge, or bAV), I recently decided to invest an additional €200 monthly in the same scheme - beside my public pension and my Riester pension plan. This analysis explains why supplementing an existing company pension can make financial sense, especially for those in similar situations.

The Setup

My investment parameters for this supplemental bAV:

• Monthly contribution: €200 (gross)
• Net cost after tax benefit: €108
• Investment period: 23 years (age 42 to 65)
• Payout period: 20 years (age 65 to 85)
• Current tax rate: 42% (plus solidarity surcharge)
• Retirement tax rate: ~32% (based on the assumption of having a total pension equal to today's average German salary of about €45,000 per year)
• Private health insurance status

The Three-Phase Investment Strategy

My plan follows a lifecycle approach with three distinct phases (return assumptions are based on past performance):

1. Growth Phase (Age 42-55): Duration: 13 years | Return: 6% | Capital after Phase 1: €51,100
2. Conservation Phase (Age 56-65): Duration: 10 years | Return: 3% | Final capital: €104,600
3. Payout Phase (Age 66-85): Duration: 20 years | Return: 3% | Monthly pension (gross): €529 | Monthly pension (net): €360

The Real Numbers (Inflation-Adjusted)

Assuming 2% annual inflation:

• Initial monthly net investment: €108
• Initial monthly net pension: €360
• Final monthly net pension: €242 (in today's purchasing power)

The Three Key Advantages

1. Tax Arbitrage: Net tax advantage: 10 percentage points: Saving taxes at 42% during contribution - Paying taxes at ~32% during retirement (assuming total pension income around €45,000/year)
2. Private Insurance Benefit No health insurance premiums on payouts (advantage over public insurance)
3. Risk-Return Profile: Initial high-growth phase captures major returns, Conservative later phases protect accumulated capital, Professional management of funds

The Bottom Line

• Total net investment: €29,808
• Total net payout: €86,400
• Nominal total return: 190%
• Real IRR after taxes and inflation: ~3.2%

Why This Makes Sense

1. The immediate tax benefit effectively gives me an €92 monthly government subsidy.
2. The three-phase strategy balances growth and security: Early focus on capital accumulation Gradual risk reduction as retirement approaches. Stable returns during payout
3. The real, after-tax return of 3.2% is attractive for a low-risk, tax-advantaged investment vehicle.
4. No health insurance premiums on payouts provide an additional advantage unique to private insurance holders.

A Brief Note on Riester Pension

While analyzing my bAV decision, it's worth mentioning my parallel experience with a Riester pension plan, which I've held for the past 10 years. Despite the government subsidies, my Riester experience highlights why bAV is particularly attractive for high-income earners:

• Real Returns: My Riester plan has only generated 1-2% returns, significantly underperforming market indices
• High Initial Costs: A substantial portion of early contributions went to "Abschlussgebühren" (acquisition costs)
• Limited Flexibility: Strict regulation requires high guarantees, limiting return potential

This real-world experience with Riester reinforces my decision to focus on bAV for additional retirement savings, where I can expect better real returns (3.2% after tax and inflation) and face lower administrative costs.

Conclusion

While this shouldn't be anyone's sole retirement strategy, the combination of tax advantages, structured risk management, and professional oversight makes it an attractive component of a diversified retirement portfolio, especially for high-income earners with private health insurance in Germany.

The key is understanding your specific situation - tax rate, health insurance status, and investment horizon all play crucial roles in determining whether a company pension plan makes sense for you.

#PersonalFinance #RetirementPlanning #FinancialPlanning #GermanTaxation #InvestmentStrategy

(analysis done with Claude AI PRO)