Since 2005 Germany sorts every form of old-age provision into three layers (Alterseinkünftegesetz). The logic: the more the state helps when you pay in, the more the money is locked up later and taxed on the way out. This is deferred taxation (nachgelagerte Besteuerung) – the tax office takes its share once, not twice.

Layer 1: Basic provision

Statutory pension (gesetzliche Rente), professional schemes and the basic pension (Basisrente, “Rürup”).

  • Subsidy: contributions 100 % deductible – 2026 up to €30,826 per person, €61,652 for couples assessed jointly (§ 10 (3) EStG). Employees’ statutory contributions already use part of this.
  • Lock-in: lifelong annuity only, not before 62; cannot be cashed out, pledged, inherited or cancelled (§ 168 (3) VVG).
  • Taxation: fixed taxable share – 84 % for anyone retiring in 2026, rising 0.5 points per cohort to 100 % in 2058 (§ 22 EStG).

Layer 2: Subsidised supplementary provision

  • Occupational pensions (bAV): from gross pay, tax-free up to €8,112 and free of social contributions up to €4,056 in 2026 (§ 3 No. 63 EStG); employer adds 15 % on salary conversion (§ 1a BetrAVG). See bAV for employees.
  • Riester (2026 rules): €175 basic allowance, €300 per child born from 2008 (older children €185), one-off €200 under 25. You pay 4 % of last year’s gross minus allowances, at least €60; up to €2,100 deductible (§§ 10a, 84–86 EStG).
  • From 2027 – passed and promulgated: the reform act (BGBl. 2026 I No. 156) replaces fixed allowances with an allowance per euro saved and introduces the retirement savings account (Altersvorsorgedepot). Existing Riester contracts continue. See the 2027 reform.
  • Taxation: fully taxable (§ 22 No. 5 EStG); bAV also carries health and care contributions for statutorily insured retirees (2026 allowance €197.75 a month, § 226 SGB V).

Layer 3: Private provision

Private pension and life insurance, securities accounts, property – all from net income.

  • Subsidy: none. In return: cancel, sell, pledge or bequeath at any time.
  • Annuity: only the income share is taxed – 18 % if it starts at 65, 17 % at 67.
  • Lump sum (contracts from 2005): the gain is taxable; only half of it after 12 years and from age 62 (contracts 2005–2011: 60), at your personal rate (§ 20 (1) No. 6 EStG).
  • Whether a securities account suits you is for a licensed investment adviser to assess.

How to proceed

  1. Sort what you have into the three layers – it explains why a contract “cannot be cancelled”.
  2. Know your statutory pension first: State pension and the pension gap.
  3. Think in tax rates: subsidies pay off most when your rate today exceeds your rate in retirement.
  4. Plan flexibility: layers 1 and 2 are forced saving with a discount; layer 3 is your accessible reserve.

General information, not legal, tax or investment advice. Sources: German Income Tax Act (§§ 3 No. 63, 10, 10a, 20, 22, 52, 84–86 EStG), § 1a BetrAVG, § 226 SGB V, Social Insurance Reference Values Ordinance 2026, Deutsche Rentenversicherung, Altersvorsorgereformgesetz (BGBl. 2026 I No. 156), consumer advice centres, Stiftung Warentest – as of October 2026. Which layer do your contracts belong to? Get in touch.