Saturday, August 21, 2010

Too early to discuss Pension ? not really !

I earned my first-ever salary in Germany. There is a lot of thrill, happiness and sense of accomplishment when you get your first paycheck. All this didn’t last long for me when I realized that my net salary was nearly half the gross salary (Reminded me of Rachel in Friends getting her first paycheck and exclaiming "who the heck is FICA and why is he getting all my money?"). Although I had heard enough about the tax and pension system in Germany, I was still unprepared when I saw the numbers in black and white.

But very soon I stopped complaining because of the benefits that one gets from the system (I need another post to explain those). When it comes to the pension system, one of the things I always wondered about was what would happen to my share since I don’t intend to stay in Germany until retirement.

I had so many questions in mind that I tried to get the information from the Deutsche Rentenversicherung website. After spending a few hours, I realized that I needed to talk to someone there if I needed comprehensive details.

There is a very easy of getting an appointment at the Beratungsstelle. This can be done online and there are many centres to choose from in the same city and of course, its free advice !

I had my appointment and there was a nice gentleman who spent 45 minutes answering all my questions and here is a brief summary of all the salient points.

Note that the post is for those living in Germany, so using the appropriate German words will offer more clarity than using their English counterparts.

How does the system work ?
Every month both the employer and you pay money into the pension system (will be shown as Rentenversicherung in your salary slip). At 67*, when you retire, depending on how long you have worked and how much you have earned you get a monthly pension.

Any basic requirement ?
The basic premise for getting any benefit from the pension system is that you have contributed to the system for at least 60 months. Anything less than that simply means you have given that money away.

Rentenversicherungsverlauf (RVV)
This gives details about the number of months you had paid into the system and the current amount in your pension account. You can ask for this online using your Sozialversicherungsnummer (social security number), usually in the format
nn A DOB nnn (n-number A-First letter of your first name, DOB – date of birth)

This will be sent to you by post. If you have moved and have not changed your address at the Burgerbüro then you can call and ask for this to be sent to your actual address.

!!!! For those who want to leave Germany for good, check the RVV. If you have been here for 58 months, for example, then it obviously makes sense to extend your stay by 2 more months !!!!

How are gaps in employment treated?
If you are unemployed (Arbeitslos) or if you are on maternity leave (Mutterschaftsurlaub or Elternzeit), this will not affect your pension payments. In the former case, the Arbeitsamt will pay towards your pension account and in the latter case, you not only get the usual pension amount but also an added bonus for each child.

This is why it is extremely important to register as 'arbeitssuchend' or 'arbeitslos' (looking for a job) at the 'Arbeitsamt' at the right time.

Benefits ?
You can either opt for getting pension when you retire (even if you don’t live in Germany) or get the money in your account as a lumpsum payment 2 years after you leave Germany for good.

Which is the better option ?
This depends purely on your financial situation and your investments. Before you get the lumpsum payment, make sure you do have some backup for when you retire. Also check if the amount you will get as pension makes sense in the long run (taking inflation and exchange rate into account).

Does visa influence the Lumpsum payment ?
Getting it back is not influenced by the kind of visa you have (befristete Aufenthaltserlaubis, Niederlassungserlaubnis, Daueraufenthalt etc.) !!! If you have German citizenship, there is no way of getting the lumpsum payment !!!

Does where I go after leaving Germany matter ?
Yes,You can get the money back if and only if Germany has an understanding (treaty) with that country (also known as Sozailversicherungsabkommen). India is one of them and the list of countries can be found here . If you go to any other country, for example in the EU, you can only opt for getting pension at retirement. Germany does not allow the money in your pension account to be transferred to the country you move to, even if it is within the EU.

Is this lumpsum payment taxable ?
No (phew…for once…something is not taxable)

How do I file for it?
Best way is to go to the DRV and to fill out the form, go home, wait for 2 yrs and then send it to them with an account number in India or elsewhere (bank charges apply). Using a Rentenberater (private consultant or auditor) is not really necessary. The 2 years time period is important; if you file before that, your claim will be rejected.

What about private Altersvorsorge (private retirement plan)?
This should be dealt with separately and not with the Rentenversicherung. Depending on the policy, the conditions vary. The easiest option is to sell the policy (in which case you will get the Rückkaufswert only) when you leave Germany.

*In general, retirement age is 67. But you can retire early under certain conditions.
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