Provision for pension refund

Member since 03 May 2019

anmol.seth27Member03 May 2019 20:35:39

Hello all

Let me first add that this website is extremely informative and has already helped me substantially. Kudos to the developers and members.

I am a non EU citizen and have a potential job offer in Germany. I am considering to take it up. I notice that a substantial part of the German salary goes into a pension fund. So I have a couple of questions with respect to this.

1) If I decide to come back to my home country after 3-4 years (or more), can I get a refund of my (and my employer's) deposits in the pension fund.

2) Does a German citizen gets all his deposits in pension at retirement or just a fraction of it? How is the pension at retirement determined ?

Looking forward to your responses.

Thanks
Anmol

beppi Germany/Singapore Expert

Member since 08 August 2010

Germany & Singapore Expert

beppiGermany/Singapore Expert03 May 2019 21:22:54

15582

1. If you leave the EU for good after 5 years or less, you can get a refund of your own contributions (without interest). The employer contributions (which are equal to yours) will then be lost.
On the other hand, you are only entitled to regular payments in old age if you contributed for 5 years or more.

2. The pension ("Rente") system is not a fund, but a "pay as you go" scheme, where today´s working populations finance pensions of today´s old. If the rules remain the same, you get a regular monthly payment from the time you retire until you die. The amount you get depends on how long and how much you contributed.
Since the ratio of working to old is changing due to an ageing society, it is not expected that this can finance the full living expenses of today´s young. So other ways of saving for old age are required - and there are many possibilities in the market.

anmol.seth27 Member

Member since 03 May 2019

anmol.seth27Member04 May 2019 06:24:37

Thankyou so much for a prompt and detailed response.

I have one follow up question though with respect to 1).

Do you mean to say that I can get a partial refund only if I stay for less than 5 years in the EU ?

And if I stay for more than 5 years, I am an only entitled to a pension at retirement and no refund ?

Thanks
Anmol

beppi Germany/Singapore Expert

Member since 08 August 2010

Germany & Singapore Expert

beppiGermany/Singapore Expert04 May 2019 07:33:45

15582

anmol.seth27 wrote:
Do you mean to say that I can get a partial refund only if I stay for less than 5 years in the EU ?
And if I stay for more than 5 years, I am an only entitled to a pension at retirement and no refund ?

Yes, exactly!
I think it is 5 years in Germany, not EU, but you better check this.

Germany Pension Refund Member

Member since 27 June 2022

Germany Pension RefundMember27 June 2022 13:12:10

Hi Anmol,

Regarding 1)

As a Non-EU citizen you can get a refund of the contributions taken out of your paycheck (9.3% up to the cap amount) as beppi mentioned. If 24 months have passed since you left Germany and you currently reside outside the EU, you can claim your refund.

The afore-mentioned 5 year limit is not a general rule as often misunderstood: It only applies to 9 countries (USA, India, Canada, Australia, Moldova, Philippines, South Korea, Albania, Turkey).

If you are a non-EU national of any other country in the world, there is no* limit for getting contributions refunded (even if you have already qualified for a retirement pension after the minimum of 60 monthly contributions).

*(For Brazilians, Japanese, Uruguayans, Israeli and Ex-Yugoslavian state citizens it depends where you live - in your home country you also cannot get a refund after 5 years of contributions paid, Israelis in Israel cannot get refunds in general. But the moment you live in a different non-EU country, for example in the USA, you can get your refund, no limit applies).

Regarding 2)

German retirement benefits are calculated by a simple formula: Total Earnings Points x Current Pension Value = Monthly Retirement pension.

Earnings point are given per year worked as a relation of your salary to the German average (Range is 0.1 to 2, 2 would mean you earned double than average, 0.1, you earned 10% of the average). Add all these points together over the (minimum 5 years) worked and you get your total earnings points. The current pension value in 2022 is 34,19 Euro for West Germany and 33,47 Euro for former East Germany.

To give you an example: If your gross income is 83.000 Euro per year you will collet 2 earnings points every year worked. If you leave Germany after 5 years, you have collected 10 earnings points. Once you reach the German age of retirement, you will be able to apply for a monthly retirement pension. If you were to retire in 2022 (as the current pension value is always adjusted towards inflation etc.) you would receive 10 x 34.19 Euros (if you had worked in West Germany) = 340.19 Euro BEFORE TAX.

As you are residing abroad, your German retirement pension will be fully subject to income tax. Tax will be deducted from that amount and you will receive the net amount in your bank account abroad.

(While retirement pension is taxable in Germany, a German pension refund is not taxable.)

I hope that clarifies more.

beppi Germany/Singapore Expert

Member since 08 August 2010

Germany & Singapore Expert

beppiGermany/Singapore Expert27 June 2022 13:42:20

15582

Germany Pension Refund: Could you please tell us where you got this information from, which contradicts what was posted before (and also my understanding of the issue and regulations)?

In any case, even if you get a refund, you always get only your own contributions - the other half, which your employer contributed, is then a gift to the German state. In most cases, it makes more sense to get both halves (plus interest) back as regular pension payments when you're old.

dartsonmel817 New member

Member since 15 August 2022

dartsonmel817New member15 August 2022 10:36:17

Hi Anmol and Beppi,

I found this article here which explains a bit better the pension system and the "Umlageverfahren" in Germany. The article is in German but you can use google translate. It is NOT as easy as you describe above as the German government actually does not pay any interest and the cases where it makes sense to wait until you reach 68 years old are mostly when you have paid for many years. If you just have lived as an Expat in Germany for a couple of years and you expect, let's say 10,000 Euros as a refund, I prefer to take this money and invest it in an ETF or buy stocks from it but not leaving it for another 30 years with the German Pension Insurance. But everybody has to make their own decision. I would always make a comparison and check how much is there actually in my Pension Account and then decide (if I am eligible to apply) if I want the money now or not. [commercial link removed by moderators - please read the forum rules!]

Hope this helps.

Greets,

Mel

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beppi Germany/Singapore Expert

Member since 08 August 2010

Germany & Singapore Expert

beppiGermany/Singapore Expert15 August 2022 11:31:58

15582

Dartsonmel: What do you mean by "does not pay any interest" - in conjunction with a link to an article that states it DOES pay a return that is actually higher than commercial interest rates?

In any case, the interest is beyond the point: The more important aspect is that a potential reimbursement includes only your own contribution, NOT the (roughly equal) contributions by your employer (which then become your present to the German state!).

You are right that ETFs or stocks CAN have higher returns (albeit at much higher risk), but your 10000 € reimbursement would have to grow to 20000 € plus returns of the pension system to break even.

Honestly, I'd leave it with the German government, to be sure that I have a steady income when I retire!