German public pension: Seek a refund or meet the conditions?
The fact is, that the German public pension will not be enough to ensure you a good standard of living in old age. This is even more true if you have only paid in a few years. So you might ask yourself whether you should rather withdraw your contributions and invest the money yourself?
As the German state pension is mandatory insurance, withdrawing your contributions is only possible under certain conditions.
Are you actually eligible for a refund?
An early refund is only possible before you have reached the standard pension age and you meet the following conditions:
You live in a so-called non-contracting state outside of the EU that does not have a social security agreement with Germany. These countries have a social security agreement with Germany: Albania, Australia, Bosnia and Herzegovina, Brazil, Canada, Chile, India, Israel, Japan, Kosovo, Macedonia, Montenegro, Morocco, Philippines, Serbia, South Korea, Tunisia, Turkey, Uruguay, United States;
You are not a German citizen;
You are not an EU citizen that has contributed at least once to the German state pension; and
You have contributed less than 5 years to the GRV.
To get a refund, you will have to observe a waiting period of 2 years and continue to meet the above conditions during that time.
So for example after being employed in Germany for 4 years and contributing to the German state pension during these years, you moved (back) to Malaysia in January 2021, and continue living there for two years. In this case, you can request a refund from January 2021 on and can get the refund in January 2023.
Be aware that if you have lived in an EU member state or Liechtenstein, Norway or Switzerland this period may count towards the minimum 5-year period for your German pension. While you won't be eligible for a refund, you are likely to be eligible for a German pension even if you worked for a few years shorter in Germany. Do check with the provider of the German state pension, the Deutsche Rentenversicherung, if this is the case.
If you are not eligible for a pension you can always still get a refund at the official age of retirement.
Tip: A refund upon retirement is better than not receiving a pension at all, so choose this option when you are too late to meet the minimum five-year requirement for a pension. But as we explain in the following, making voluntary contributions can be a much better option.
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How can I contribute voluntarily to meet the requirements for a payout?
Rather than requesting a refund, you may want to make voluntary contributions. You have the option to voluntarily contribute but only if you do not fulfill the mandatory requirements. This is a very relevant question e.g. for self-employed people in Germany or if the pension system in your own country does not work very well. There are also additional requirements that you have to fulfill. And:
you are a German citizen – it does not matter if you live domestically or abroad; or
you have contributed at least once to the GRV and are an EU citizen or you live in an EU state, or you live in a country with a social security agreement with Germany.
If you want to contribute voluntarily to the German state pension you can do so in any amount between the minimum of 83,70 € (minimum contribution for one month) and €15,735.6 (twelve times the maximum monthly contribution of 1.311,30 € per month for a whole year). This upper and lower limit is valid for 2022, it will be adjusted every year. The maximum contribution will earn you 2,17 pension points in 2022, smaller contributions correspondingly less. You can find out more about the German state pension scheme and the value of pension points in our article Public pension in Germany: Everything you need to know about it.
You can usually only pay voluntary contributions for the current year – only if you meet special conditions, like working for the EU you can contribute for past years. You can download the application form for payment of voluntary contributions directly at the Deutsche Rentenversicherung's website.
Caution: If you want your voluntary contributions to count towards the minimum requirement of 5 years, you will have to pay both the employee's (9,3 %) and the employer's (9,3 %) contribution rate for a total of 18,6 % of your gross income for the missing periods. Only contributions made for a full year and on your entire eligible employment income will count. For example, if you have already contributed three full years when working in Germany, you need to contribute another two full calendar years to achieve a minimum of five years. You can do so in different years, so the years do not need to be consecutive.
How much can I get refunded and what are the conditions?
How much refund do you get?
In every case of a refund, only the employee's contribution, not the employer's share, can be refunded. This means that if you make voluntary contributions you will only get 50% of your contributions reimbursed. In addition, you will not receive a refund for pension points that you were rewarded for example for times of parental leave since you did not earn them by paying actively into the pension insurance. You also cannot receive a refund if you have already received the benefits in some way (such as medical rehabilitation benefits).
What are the conditions of your refund?
Be aware that you will not receive any interest on your early contributions. As early contributions were "cheaper", as the cost for a pension point was lower at that point, your early contributions do not yield you as much refund as later contributions for each point you have earned.
How does the refund process work?
There is a waiting period of 24 months after you move away from Germany before you can claim your money. If you remain eligible – so you do not pay in nor do you have the option to – you can obtain a refund.
Keep in mind that it is usually a long and complicated process. The process begins with filing your application (which can be in your native language) with any German state pension office, with a German embassy, or with your local German consulate. Here you can download the required documents for requesting a refund in English, French, or German.
Should you get a refund or work more? What is the best choice in your personal situation?
So if you are eligible for a refund and never plan to return to Germany or work in the EU or a state with a social security agreement with Germany, you should clearly seek a refund as soon as you can, as you won't get a state pension and your refund does not get any better. So get your contributions back as soon as possible and rather invest them wisely, for example in a PPP (see below).
But it can make sense to work for another year and complete your 5-year minimum. Here is how you can make that choice.
The solid lines show the value of working another full year for employees and self-employed. As you can see it depends very much on your age. The older you are the more valuable it is for you to work another year and get that German pension. When you are older you get more out of receiving a pension based on the full amount paid in, rather than the half (the employee's share) you would get out.
Thus, for example, when you are 30 years old and employed the implicit return on your own contributions to the German state pension is about 3,5 %.
You should compare the return of self-investing with what you can earn when you get the refund. These are the dotted lines, with the 7% line being the highest realistic gross return. Over time this line goes down as you normally want to invest more conservatively the older you are, and therefore the older you are the lower your overall expected return.
The bottom line is fairly clear: If you are a clever investor and achieve an average annual yield of 7% and are willing to take the necessary risk, it is not worth it to contribute another year until you are about 55.
But the less successful you are in investing on your own, the younger the age at which you want to put in an extra year. For example, if you invest say just 75% in stock and the rest in bonds and therefore get a compound return of about 5%, then already at the age of 45 you are better off putting in that extra year, rather than seeking a refund.
If you are under 40-45 you may want to seek a refund but then invest the money wisely. If you have just worked for 3 years, then it rarely pays to work another 2 years unless you are in the 55-60 year age range or have a very high life expectancy. Keep in mind that most people that invest for themselves don't get a very good return. This is why we recommend a Pensionfriend PPP, where you pay your capital gains tax only once, and we advise you on a choice of superior ETFs. This can even work out if you move abroad.
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