Unit-linked pension insurance in Germany: how to choose

Q: What are the conditions for tax reliefs?

For a lump-sum payment: The contract must run for a minimum of 12 years, and payout must not occur before the age of 62 (for older contracts — 60 years). Only then does the tax-privileged regime under Section 20(1) no. 6 of the German Income Tax Act (EStG) apply. The calculation is done in two steps. First, 15 per cent of the profit is fully exempt — this is a tax break specifically for unit-linked policies (sentence 9). Then, half of the remaining 85 per cent is taxed (sentence 2). Result: the amount subject to tax is 42.5 percent of the profit , and at your personal income tax rate, rather than the 26.375 percent rate. The rule “half the profit is taxable” without the 15 per cent deduction applies to standard endowment life insurance — without funds. For a unit-linked policy, the taxable share is lower. For a lifetime annuity: the later you convert capital into an annuity, the smaller the taxable portion (Ertragsanteil, § 22 EStG).

Fondsgebundene Lebensversicherung — an investment savings product that will allow you to build up a substantial capital by the time you retire, as well as receive a lifetime supplementary pension or a large lump-sum payout.

In recent years, traditional life insurance (Lebensversicherung) has been losing popularity due to persistently low interest rates. Unit-linked retirement insurance differs from traditional life insurance in that there is no guaranteed rate. Investments go into funds, meaning that risks, just like profits, are unpredictable.

Video: Pension investments - who needs them?

What is Fondsgebundene Lebensversicherung?

Fondsgebundene Lebensversicherung (unit-linked life insurance) — a combination of life cover and investment in funds. Unlike traditional life insurance, a portion of the premiums is invested in shares or ETFs, which has the potential to increase returns.

Key features:

Three payout options: a lifetime pension, a lump-sum payment or a combination of these options.
In the event of the insured’s death, there is an insurance payout.
There are tax exemptions.

In Germany, such insurance policies are regulated by the VAG — the German Insurance Supervision Act — and are suitable for long-term saving.

Advantages and disadvantages of Fondsgebundene Lebensversicherung

With a lump-sum payment under the “12 and 62” rule, only 42.5 % of the profit is taxed — and at your own rate, rather than at the rate of 26.375 %
In the case of a lifetime annuity, only a portion of the pension will be subject to income tax, depending on the age of retirement.
You choose the amount of your regular contributions and any top-ups yourself
Portfolio rebalancing may be possible without paying capital gains tax
You can suspend contributions or terminate the contract
Partial withdrawal of funds is available (childbirth, purchase of a house, etc.)
Savings can be inherited

Important: do not combine Fondsgebundene Lebensversicherung with a standard Risikolebensversicherung (term life insurance).

A comparison of Fondsgebundene Lebensversicherung with independent investing

Pension savings schemes are not the only way to invest. Compare Fondsgebundene Lebensversicherung with independent investments based on key criteria.

Criterion	Fondsgebundene Lebensversicherung	DIY investing
Tax reliefs	Yes. Under the “12 and 62” rule, 42.5 percent of the profit is taxed — and at your personal income tax rate	No. Profits are taxed at a rate of 26.375 per cent. For equity funds, 30 per cent of the profits are exempt (Teilfreistellung), making the effective rate around 18.5 per cent.
Capital preservation guarantee	Partial. The level of contribution protection is chosen at the time of taking out the policy; in current fund tariffs, this is usually up to 80–90 %. Each percentage point of protection diverts a portion of the money away from shares – this is the price you pay for peace of mind	No. The market drawdown is fully reflected in the account
Flexibility	Limited. Partial withdrawals are possible, but exiting before 12 years and age 62 results in the loss of the tax relief	Full. You can sell on any day, but each sale is a taxable event
Commissions	Higher. The benchmark is the Effektivkosten (effective costs) figure, which the insurer is obliged to state before signing.	Lower. Usually only fund TER and custody fees

Capital guarantee (Kapitalgarantie) is a key difference between insurance investments and brokerage accounts.

Conclusion: if tax reliefs and guarantees are important to you, choose insurance. If you are prepared to take risks, DIY investing can sometimes be more profitable. Read our articles about platforms for DIY investing with professionals: ComfortInvest and easyInvesto.

How does Fondsgebundene Lebensversicherung work?

With unit-linked life insurance, a portion of your insurance premiums is invested in selected funds. Thus, you participate in the growth of global markets, but with important caveats. Bear in mind that some insurers typically do not offer the same free choice of funds as a broker.

Types of funds

According to the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, BaFin), funds can be classified into three types:

1. Rentenfonds (bond funds)

> 70% of the portfolio — government bonds, minimal risk
Annual return: 1–3%.

2. Aktienfonds (equity funds)

Losses of up to 30–40% are possible during a crisis (for example, in 2020, global markets recorded a loss of −35%).
The average return across the market can reach 6–8%.

3. Mischfonds (mixed funds)

The equity/bond ratio ranges from 40/60 to 60/40.
The average return is approximately 3–5% per annum, depending on the allocation and management fees.

The main requirement for Rentenfonds is capital preservation, which means a low yield. The main instruments are bonds and securities with a guaranteed low interest rate.

Many equity funds offer a high potential return. However, this also means higher risks of losses in unfavourable market conditions. We recommend combining different types of funds in order to spread the risks.

Pension investing through funds offers tax advantages that come into effect at the time of payout.

Conditions for receiving tax reliefs

Lump-sum payment

Requirements for the tax relief on a one-off payment of the accumulated amount:

Next, two provisions apply in succession. First, 15 % of the profit is fully exempt — this is a tax relief specifically for unit-linked policies (Section 20(1)(6), sentence 9 of the Income Tax Act). The half-rule (sentence 2) then applies to the remaining 85 %. Result: 42.5 % of profit is subject to tax, and at your personal income tax rate, rather than the rate of 26.375 %.

Why do people often write “50 %” online? It’s a rule for ordinary endowment life insurance, without investment funds. With a unit-linked policy, the 15 % exemption is added, so the result is lower.

Lifetime pension

If the accumulated funds are converted into a life-long pension, part of the payments is subject to income tax.

The older you are when you retire, and the later the conversion takes place, the smaller the taxable portion will be.

For example, if you convert at the age of 63, only 20% of your pension payments will be subject to tax. If you convert at the age of 67, tax will be payable on 17% of your pension payments.

Table: The taxable portion of a pension, depending on the age at which a person retires.

Retirement age

Taxable share in %

Retirement age

Taxable share in %

58 years old
59 years old
from 60 to 61 years old
62 years old
63 years old
64 years old
from 65 to 66 years of age
67 years old
68 years old
from 69 to 70 years old
71 years
from 72 to 73 years old

74 years
75 years
from 76 to 77 years old
from 78 to 79 years old
80 years
from 81 to 82 years old
from 83 to 84 years old
from 85 to 87 years old
from 88 to 91 years old
from 92 to 93 years old
from 94 to 96 years old
from the age of 97

Retirement age

Taxable share in %

74 years
75 years
from 76 to 77 years old
from 78 to 79 years old
80 years
from 81 to 82 years old
from 83 to 84 years old
from 85 to 87 years old
from 88 to 91 years old
from 92 to 93 years old
from 94 to 96 years old
from the age of 97

Source

Example calculation: lifetime pension from a Fondsgebundene Lebensversicherung

With Fondsgebundene Lebensversicherung, you get 1,500 euros a month gross. You retired at the age of 64, which means that the taxable portion of your pension is only 19% — 285 euros.

Example of calculating a lump-sum payment

You retire at the age of 62, and your insurance contract has been in place for over 12 years. You receive €70,000 from unit-linked pension insurance, into which €40,000 was paid. The profit is €30,000.

We calculate in two steps, as prescribed by law:

15 % of the profit is exempt as a tax relief for unit-linked policies: 30’000 − 4’500 = €25,500 (section 20(1) no. 6 sentence 9 of the German Income Tax Act (EStG));
half of this is taxable: €12,750 (Section 20(1) number 6 sentence 2 of the German Income Tax Act (EStG)).

Precisely these €12,750 are added to your annual income and taxed at your personal rate. That is 42.5 % of the profit, rather than 50 %: unlike standard endowment life insurance, a unit-linked policy offers an additional exemption of 15 %.

FINBER recommendations

I do not recommend combining Fondsgebundene Lebensversicherung with standard life insurance — Risikolebensversicherung. It is better to take out these products separately. Should you face financial difficulties, you will be able to suspend your unit-linked life insurance (Fondsgebundene LV) without losing the cover provided by your standard life insurance (RLV).

In the case of a joint product, you most often do not know what proportion of your funds goes towards building up savings and what proportion goes towards life insurance.
Consider investing in index ETFs rather than managed equity funds. In this case, your fund administration costs will be lower.
Before signing the contract, decide which funds you would like to invest in.
Whilst investing, watch how your fund develops. With good plans, switching funds is free and unlimited, whilst automatic rebalancing once a year restores your chosen allocation. If the offer charges a fee for switching funds or limits it, that is a reason to look at another plan.
In investing, profit is not guaranteed. Therefore, there must be an additional tool for creating a pension.
Invest in different funds to spread the risks. You should start with two or three options.

The main figure in the contract that people forget to ask about

Everyone looks at the projected return. But a projection guarantees nothing — the Rentenfaktor (annuity factor) does. It is the only figure that the insurer is obliged to honour after 25–30 years.

It is easy to read: the Rentenfaktor is stated per 10,000 euros of accumulated capital. A Rentenfaktor of 30 on capital of 100,000 euros means a lifelong annuity of 300 euros a month.

In a good tariff, the annuity at retirement is calculated in two ways — using the current actuarial bases and using the guaranteed Rentenfaktor from the policy — and the insurer pays the larger of the two. After that, it can no longer go down.

The legal news that reinforced this point. In its decision of 10.12.2025 (Ref. IV ZR 34/25) the German Federal Supreme Court declared invalid a clause in the terms of a unit-linked pension policy that allowed the insurer to unilaterally lower the Rentenfaktor under unfavourable circumstances. The court’s reasoning: the right to reduce the payment without a reciprocal obligation to increase it when circumstances improve disproportionately prejudices the client (§ 307, § 308 No. 4 BGB). This was previously recognised by the OLG Stuttgart (30.01.2025, Az. 2 U 143/23).

Accuracy is important: The dispute was about a Riester contract. The ruling itself is binding for this type of clause, and consumer organisations point out that similar wording is widespread in the industry. However, it is not automatically applied to all private tariffs – which is why, when selecting a policy, we still check the wording of the terms and conditions to see whether they include the insurer’s right to revise the coefficient.

The second element of the guarantee is the maximum technical interest rate. In 2026, it is 1.00 per cent (§ 2 DeckRV), and — this is important — the rate, as it stood at the time of conclusion, applies for the entire term of the contract. A contract concluded today will not be affected if the rate is lowered later.

You choose the contribution guarantee level yourself. Because of the 1 per cent rate, a 100 per cent guarantee is generally no longer offered in modern fund tariffs: the typical range is up to 80–90 per cent of total contributions, in 10 per cent steps. The logic of the trade-off is simple: each percentage point of guarantee moves a portion of the money out of equities into the conservative part yielding 1 per cent. A guarantee is not a free option but the price you pay for peace of mind.

What the insurance wrapper provides that a brokerage account does not

Mechanism	How much is that in money
Changing funds is tax-free	Within the policy, the insurer holds the units, so switching funds and rebalancing do not constitute a realisation of profit for you. In a brokerage account, every sale is a taxable event. Order of magnitude: a single profit-taking in year 15 costs about €2,900 for every €10,000 invested over 30 years at a 6 percent return
No preliminary lump-sum tax	The Vorabpauschale, which is deducted from paper profits in the brokerage account every January, does not arise here: the insurer acts as the investor within the meaning of the law, not you.
Life annuity	When payments start at 67, 17 percent of the annuity is taxable. A withdrawal plan from a brokerage account in a comparable model means about 15 per cent tax on each withdrawal — but without protection against longevity risk. The policy pays out as long as you are alive, even if the capital has long since been exhausted
Lump-sum payment: the “12 and 62” rule	Taxed on 42.5 per cent of the profit, and at your personal rate. In a brokerage account holding an equity fund, 70 per cent of the profit is taxed at 26.375 per cent (after the 30 per cent Teilfreistellung). The conditions for the tax relief are a 12-year contract term and age 62.
The right to choose at the end	A pension contract with a capital option lets you choose, at the time of retirement, whichever is more advantageous: a life annuity or a lump-sum payment. There is no need to make a decision before then

Protecting savings: an argument that is rarely written about

A pension policy is protected differently than a regular account. For someone building a life in a new country, this is often more important than a couple of tenths of a percent in returns.

Situation	What is happening to the savings	Legal basis
Claiming a social benefit from 1 July 2026 Grundsicherungsgeld (basic income support) instead of Bürgergeld (citizen’s income)	Insurance policies intended to provide for old age are not counted as assets at all — with no ceiling. For comparison: ordinary savings are only protected up to 5,000–20,000 euros depending on age, and the previous grace period for assets was abolished on 1 July 2026	Section 12(1) sentence 2 number 3 of the Second Book of the Social Code (SGB II)
Debt collection	Protected from attachment: up to €7,000 in contributions per year aged 28–67 years, up to a total of €340,000	Section 851c of the German Code of Civil Procedure
Personal bankruptcy	What is not subject to attachment is not part of the bankruptcy estate	Section 36(1) of the Insolvency Act (InsO)
Relocation from Germany	The agreement remains in force. Germany retains limited tax liability on payments from the German insurer; the final taxing right is allocated by the double taxation agreement with your new country – this point needs to be checked separately.	Section 49(1) no. 5a and no. 7 of the EStG

A caveat on protection from attachment: full protection under § 851c ZPO requires that the contract provides for only a lifetime annuity without the right to a lump-sum payment. This is a direct trade-off with flexibility — which option is more important to you is decided at the time of arrangement.

Fair arithmetic: where the advantage disappears

Everything listed above works on one condition: the tariff must be inexpensive. Below are the figures we quote to the client before signing, not after.

Average industry costs are around 2 percent per year. At a 5 percent yield before costs, this eats up roughly half of the final return, according to an April 2026 estimate by the Verbraucherzentrale (consumer advice centre).
The tax advantage has a limit. In the model “10,000 euros for 30 years at 6 per cent”, the tax advantage of the policy is equivalent to an allowable cost overrun of just 0.25 percentage points per year with a personal tax rate of 25 per cent, 0,18 at a rate of 30 and almost zero at a rate of 42. Against an index fund TER of around 0.2 percent, this means: the expensive tariff completely destroys the tax advantage.
An independent test confirms this. In May 2025, Stiftung Warentest tested 22 equity pension tariffs without contribution guarantees. The rating “good” was received by only three. Test weights: costs 40 per cent, ETF selection 30, flexibility and transparency 20, guaranteed annuity rate 10.

Practical conclusion. A product as a class is never “good” or “bad” — only a specific tariff can be good or bad. Therefore, the first thing you need to demand from any offer is the Effektivkosten: how much all expenses together reduce your annual return. The insurer is obliged to state this figure prior to signing (§ 2 Para. 1 No. 9 VVG-InfoV). If the advisor cannot name it immediately, that is the answer.

One more point on initial expenses. The law does not cap them (§ 4 DeckRV only governs how much of them the insurer may offset in its premium reserve); the costs in euros are shown in the documents you receive before signing. A separate provision protects you in the event of early exit — upon termination, the insurer is obliged to pay out no less than what would have resulted in the event of even distribution of these expenses over the first five years (§ 169 para. 3 VVG). Hence the simple rule: a contract only makes sense when you are certain that you will see it through to the end.

Checklist: 12 signs of a good tariff plan

This is what we check in every offer. Take the list with you to any adviser — it can save you years.

#	What should be in the contract
1	The Effektivkosten are stated before signing and you see this number in a document rather than a presentation
2	The list of available funds includes index ETFs, and not just the insurer’s actively managed funds
3	Switching funds is free and unlimited — both for new contributions and for already accumulated capital
4	Rebalancing restores your chosen allocation free of charge once a year
5	Ablaufmanagement (lifestyling): gradual switching into conservative funds before retirement — free of charge, and you can switch it on or off as you wish
6	The guaranteed annuity rate is specified in the policy, and the rule applies that “the larger of the two calculated annuities is paid”
7	You choose the contribution guarantee level and you can change it during the term
8	Contributions can be paused more than once and without penalty, and payments can be resumed — without a new health check
9	Top-ups and partial withdrawals possible without a cancellation fee
10	The start of payouts can be moved by ±5 years without recalculating the actuarial bases, and if the statutory retirement age is raised, there is a separate right to extend the contract
11	If you die before payments begin, your heirs receive all the accumulated fund assets, rather than a mere “refund of contributions paid”
12	You can add protection against loss of earnings, and when changing the tariff, it is retained without a new risk assessment

Three routes to building a pension: what to choose

	Rürup pension with funds	Private unit-linked pension	Own ETF portfolio
Deduction of contributions from the tax base	Up to €30,826 per year, for spouses 61’652	No	No
Tax during the accumulation period	No	No	Vorabpauschale every January
Change of funds	Tax-free	Tax-free	Taxed
Tax on payout	84 per cent of the pension if payments start in 2026	17 percent annuity starting at 67 or 42.5 percent profit for a lump-sum payout	Around 18.5 per cent of the profit
Withdraw the lot as a single lump sum	Impossible	Yes, if the right to capital is provided for	Yes
Inheritance, pledge, sale	Severely restricted	Available	Available
Who is it usually suitable for	For the self-employed and those with a high tax rate right now	Employees with a 15+ year horizon who need a lifelong payout	For those who are ready to manage their own portfolio and do not need protection against longevity risk

There is a fourth route as well — through the employer. In 2026, up to €8,112 a year can be paid in free of income tax, and free of social security contributions up to €4,056. If the employer makes additional payments, this route is often more advantageous than a private contract, and it is worth starting the analysis with it.

What if I change my mind: your rights under the contract

The most common fear is “I’ll sign it and won’t be able to get out of it.” The law is on your side here, and it is helpful to know the exact regulations.

Right	What it gives you	Legal basis
Cancellation of the contract	30 days from the moment of receiving all documents, in text form, without giving reasons. If you were not given an explanation of this right, the time limit does not begin to run at all	Section 152 VVG
Minimum surrender value	Upon cancellation, the insurer is obliged to pay out no less than what would result from an even distribution of the acquisition costs over the first five years	Section 169(3) VVG
Deduction limit	Withholding is permissible only if it has been agreed, is expressed as a specific sum and is proportionate. Withholding for acquisition costs not yet amortised is invalid	Section 169(5) of the VVG
Making the policy paid-up	Alternative to termination: the contract remains in force, the period for the “12 and 62” rule continues to run, and the capital remains in the funds	Section 165 of the VVG

What this means in practice. Cancellation in the early years is almost always the worst option: the initial charges have already been written off, and growth has not yet begun. If making payments has become difficult, the correct course of action is: first a payment holiday, then reducing the contribution, and only as a last resort, cancellation. A good plan allows for all of this without penalties.

Who this is suitable for and who it isn’t

Probably yes	Probably not
A time horizon of 15 years or more, and you are certain you will see the contract through to the end	Horizon under 12 years or money might be needed before age 62
The goal is lifelong payment, not capital: you want to mitigate the risk of “running out of money before running out of life”	The goal is to save up a specific amount by a certain date and withdraw it in full
You are planning to change the portfolio composition along the way — within the policy this is free of charge and tax-free	Buy-and-hold strategy: then the tax advantage hardly works
It is important to protect savings in the event of social benefits, debt recovery or bankruptcy	Your personal tax rate is close to the maximum and will remain so in retirement
You need income protection bundled into the same contract	The proposed tariff has Effektivkosten of around 2 per cent — then the honest answer is an ETF savings plan

What you will get from the consultation

We operate as a broker: we source from the market rather than selling a single product. The consultation is free and carries no obligation.

Calculation for your situation: age, time horizon, contribution, desired equity stake — and what comes out of it at the end.
Effektivkosten for each offer — as a single number, right next to each other. This is the first thing you will see.
Guaranteed annuity rate in comparison and an explanation of what it consists of in each tariff.
Comparison with alternatives: basic pension, employer-sponsored scheme, ETF savings plan. If ETFs are more advantageous in your case, we will tell you so.
Contract review against the 12-point checklist above, including the items that usually crop up after ten years.

Book a consultation

The form is below on this page. You can also write to us on Telegram — we will reply the same day.

Sources

Section 20(1) no. 6 of the German Income Tax Act (EStG) — taxation of life insurance payouts: gesetze-im-internet.de
§ 52 Para. 28 EStG — age 62 for contracts concluded from 2012: gesetze-im-internet.de
§ 22 EStG — taxable portion of the annuity: gesetze-im-internet.de
Section 10 EStG — deduction of basic pension contributions: gesetze-im-internet.de
§ 3 No. 63 EStG — workplace pension scheme: gesetze-im-internet.de
§ 2 DeckRV — maximum technical interest rate: gesetze-im-internet.de
§ 4 DeckRV — offsetting acquisition costs in the premium reserve (Zillmerung): gesetze-im-internet.de
§ 152 VVG — cancellation of the contract within 30 days: gesetze-im-internet.de
§ 169 VVG — Surrender value and deductions: gesetze-im-internet.de
§ 2 VVG-InfoV — obligation to disclose the Effektivkosten: gesetze-im-internet.de
§ 12 SGB II – Capital assets for social benefit: gesetze-im-internet.de
Section 851c ZPO — protection of pension savings from attachment: gesetze-im-internet.de
§ 36 InsO — what does not form part of the insolvency estate: gesetze-im-internet.de
§ 49 EStG — limited tax liability after relocation: gesetze-im-internet.de
BaFin — insurance supervision: bafin.de
Verbraucherzentrale — evaluation of private pension insurance: verbraucherzentrale.de

Frequently asked questions

What is Fondsgebundene Lebensversicherung?

This is a unit-linked life insurance policy where your contributions are invested in investment funds of your choice. The amount of the future payout depends on the performance of these funds: the more successful their growth, the higher your return.

Unlike traditional insurance with a guaranteed rate, the return here is not fixed and is directly linked to market dynamics.

What types of funds are there?

Three categories: Rentenfonds (conservative; 1–3%), Mischfonds (balanced; 3–5%), Aktienfonds (high-risk; 4–7%, potential losses of up to −35 %).

What are the conditions for tax reliefs?

For a lump-sum payment: The contract must run for a minimum of 12 years, and payout must not occur before the age of 62 (for older contracts — 60 years). Only then does the tax-privileged regime under Section 20(1) no. 6 of the German Income Tax Act (EStG) apply.

The calculation is done in two steps. First, 15 per cent of the profit is fully exempt — this is a tax break specifically for unit-linked policies (sentence 9). Then, half of the remaining 85 per cent is taxed (sentence 2). Result: the amount subject to tax is 42.5 percent of the profit, and at your personal income tax rate, rather than the 26.375 percent rate.

The rule “half the profit is taxable” without the 15 per cent deduction applies to standard endowment life insurance — without funds. For a unit-linked policy, the taxable share is lower.

For a lifetime annuity: the later you convert capital into an annuity, the smaller the taxable portion (Ertragsanteil, § 22 EStG).

How many funds should I choose in a Lebensversicherung?

We recommend holding at least two or three different investment funds to minimise risk and maintain a balanced portfolio. For products such as Fondsgebundene Lebensversicherung (life insurance with an investment component), diversification is particularly important, as the insurance portfolio may include:

equities (stock market indices, sector funds)
precious metals

bonds (government, corporate)

property

commodities
money market.

What are the risks associated with Fondsgebundene Lebensversicherung?

The risk of volatility in the global market, especially in equity funds.
High fees.
There is no guarantee that the invested funds will retain or increase in value.

It is better to arrange pension investing for the long term.

Who needs pension investments?

Fondsgebundene Lebensversicherung — a sophisticated financial product combining insurance and investment. With a judicious choice of funds and a long-term approach, it can be an effective pension-saving tool. But it is important to take into account fees, risks and the requirements for tax relief.

In this video we will explain who should consider pension investing, what its advantages are, and what the drawbacks are.

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