A private pension insurance (private Rentenversicherung) is not worthwhile for career starters across the board, only under certain conditions. It offers guarantees and the option of a lifelong pension, but it is unsubsidised, often costly and binding for the long term. With the Altersvorsorgedepot from 2027 and the rules for occupational pensions, there are alternatives you should set side by side. This guide is aimed at the start of your career. For students there is Private pension insurance as a student: worthwhile or expensive?.
In short: A private pension insurance is a long-term contract without a state allowance. On a lump-sum payout only the difference between benefit and contributions is taxable, and half of it is left out if the contract ran at least 12 years and you are 62 at payout (contracts from 2012). Whether it fits depends on costs, guarantees and alternatives. Last updated: November 2026.
Key points at a glance
- A private pension insurance is an unsubsidised long-term contract that can provide a lifelong pension or a lump sum.
- On a lump-sum payout the difference between benefit and contributions is taxable, under conditions only by half.
- Pension payments are taxed at the Ertragsanteil (taxable share), which Section 22 EStG grades by the age completed at the start of the pension, for example 18 percent for a start at age 65 or 66 and 17 percent at 67.
- The Altersvorsorgedepot (start expected 2027) and the occupational pension offer support that the private contract lacks.
- For a career start: check protection and subsidised building blocks first, then the unsubsidised contract.
What is a private pension insurance?
It is a contract with an insurer into which you pay contributions over many years. During the savings phase the balance is invested, either in the classic way with guarantees or fund-linked with fluctuation risk. In the payout phase the contract can pay a lifelong pension or, if agreed, a lump sum. Unlike an occupational pension or the future Altersvorsorgedepot, there is no allowance and no employer top-up. Acquisition and administration costs as well as guarantees influence how much of your contributions is left as a benefit in the end. The provider’s product information sheet shows the costs.
Two variants differ at the core. With the classic variant the insurer invests contributions mainly cautiously and promises a minimum benefit. With the fund-linked variant you bear the market risk, the benefit can turn out higher or lower, and guarantees are, depending on the tariff, lower or only available for an extra charge. Check the contract documents for which benefit is guaranteed and which is only projected.
How is the payout taxed?
It depends on the form of payout. The information is based on the tax administration’s guidance (Finanzamt NRW, income from pension insurance, as of October 2026, in German) and on Section 20(1) no. 6 EStG and Section 22 EStG.
| Form of payout | Taxation | Condition |
|---|---|---|
| Lump sum, contract after 2004 | The difference between benefit and contributions is taxable, in principle at 25 percent flat withholding tax | standard case |
| Lump sum with half-income rule | Only half of the difference is taxable, at your personal tax rate | payout after at least 12 years and age 62 for contracts after 31 December 2011 |
| Pension payment | Taxation at the Ertragsanteil under Section 22 EStG, graded by the age completed at the start of the pension (18 percent at 65 or 66, 17 percent at 67) | ongoing pension |
The Ertragsanteil is set out in the table in Section 22 No. 1 sentence 3 letter a double letter bb EStG (retrieved on 2 November 2026). It is 21 percent for a pension starting at age 62, 20 percent at 63, 19 percent at 64, 18 percent at 65 or 66 and 17 percent at 67. What counts is the age completed at the start of the pension, and only this share of the ongoing pension is subject to income tax. For a pension of 6,000 euros a year starting at 67, that is 17 percent, so 1,020 euros of income taxable at your personal rate.
A worked example with assumptions: you have paid in 30,000 euros of contributions, the contract runs 25 years, you are 62 at payout and receive 50,000 euros as a lump sum. The difference is 20,000 euros. If the conditions for the halving are met, 10,000 euros are taxable. If they are not, 20,000 euros are subject to the 25 percent flat withholding tax. The tax in euros also depends on your personal tax rate and other charges. This example contains no statement about returns.
What speaks for and what against the contract?
| Pro | Con |
|---|---|
| Guarantees possible, depending on the tariff | No state allowance, no employer top-up |
| A lifelong pension can be agreed and protects against longevity risk | Acquisition and administration costs reduce the benefit |
| Lump-sum option possible, then half taxation under conditions | Long-term commitment; on cancellation the insurer pays the surrender value, which can be below the contributions |
| The contract belongs to you and is independent of the employer | Contributions cannot be deducted as with a Basisrente |
Both sides count. Guarantees and protection against longevity are a real benefit for people who want predictable income. The costs and lack of subsidy are a real drawback if you can invest flexibly and broadly anyway. Which side outweighs the other depends on your risk appetite and budget.
What alternatives are there at career start?
- Occupational pension: right to salary conversion up to 4 percent of the contribution ceiling and a 15 percent employer top-up where social contributions are saved (Section 1a BetrAVG). More in Occupational pension in your first job.
- Altersvorsorgedepot: adopted, start expected on 1 January 2027, basic allowance of up to 540 euros a year (DRV, Altersvorsorge reform act, in German). More in Altersvorsorgedepot 2027.
- ETF savings plan: flexible, no contract commitment, but no guarantee. The comparison is in Altersvorsorgedepot or ETF savings plan.
- Rürup pension: tax-deductible, with its own restrictions on access and inheritance. More in Rürup pension for graduates and the self-employed.
A capital life insurance is a related product with its own logic, see Is a capital life insurance still worthwhile for retirement? (in German).
When does a private pension insurance fit at career start?
- If you already have an emergency reserve and can sustain the contributions for the long term.
- If guarantees or a lifelong pension matter to you and you know the costs.
- If you have checked the subsidised building blocks and are looking for a supplementary unsubsidised solution.
- If you do not give up occupational disability cover. It is a different product and is not replaced by the pension insurance.
The contract fits less well if your budget fluctuates, you plan larger expenses in the next few years or you have no interest in guarantees. In that case a more flexible investment or a subsidised solution may suit your situation better.
Frequently asked questions
Is a private pension insurance sensible for career starters?
It can be if guarantees or a lifelong pension matter to you and you accept the costs. It has no allowance. Check the occupational pension and the Altersvorsorgedepot first.
Do I have to pay tax on the payout?
Yes, on the difference between benefit and contributions for a lump sum, or on the Ertragsanteil for pension payments. Under conditions only half of the difference is taxable for a lump sum, after 12 years and from age 62 for contracts after 2011.
What happens if I cancel?
The insurer pays the surrender value. It can be below the contributions paid in, especially in the first years. Before signing, ask about the values and about the option of making the contract contribution-free.
Is there an advantage over the Altersvorsorgedepot?
Under the available rules the Altersvorsorgedepot offers state allowances that the private contract lacks. The private pension insurance can in turn include guarantees and a lifelong pension. The two routes are different and cannot be ranked across the board.
What to do next
- Settle your emergency reserve and protection first, such as occupational disability cover.
- Ask about the occupational pension and check top-up and costs.
- Watch the start of the Altersvorsorgedepot and compare using product documents.
- For a private pension insurance, read the product information sheet, costs, guarantee and surrender values.
- If needed, get a personal assessment through Academycon.
Related guides
- Retirement provision 2027: Overview of custody account, Frühstart-Rente and Riester
- Private pension insurance as a student: worthwhile or expensive?
- Occupational pension or Altersvorsorgedepot: Which option suits you?
- Retirement provision for graduates: The right order
- ETF savings plan for students: step by step
Sources: Finanzamt NRW: income from capital life and certain pension insurance (as of October 2026, in German), Section 20 EStG, income from capital assets (as of October 2026, in German), Section 22 EStG, other income (as of October 2026, in German), Deutsche Rentenversicherung: Altersvorsorge reform act (as of October 2026, in German).
Last updated: November 2026. This guide is general information, not individual advice.
