Self-employed: what kind of pension insurance do you need?

8 min read

Pension insurance and old-age poverty

As early as 2016, the German Institute for Science Research pointed out a problem: self-employed people have a particularly high risk of being affected by old-age poverty. But why? And what can people do about it? In this article, we’ll cover the challenges and solutions for self-employed people who want to secure their financial future.

First, let’s look at the three main drivers of old-age poverty among self-employed people in Germany. 

Irregular income

Monthly incomes vary for most self-employed people, depending on how many projects come in and whether invoices are paid on time. When money’s tight, expenses such as rent, electricity, or groceries naturally take priority. Less urgent things—like pension insurance for the self-employed—sometimes take a back seat. That's especially true for freelancers whose average income isn’t particularly high. However, the longer you put off thinking about retirement provisions as a self-employed person, the more difficulties you might have later down the line. 

Difficulty budgeting 

If you earn a fixed salary, then you pay social security contributions through your employer, such as pension insurance. If you’re self-employed, you have to pay for your insurance directly. When your income ends up in one business account, it’s all too easy to spend more than you actually have. After all, it’s your gross income—you still have to cover your taxes, pension, and health insurance.That’s why it’s essential to have an accurate overview of your monthly expenses. This will help you get a handle on your costs and fill in any important gaps, like pension insurance.

No standard compulsory insurance

There’s still no standard legislation in Germany for insurance for self-employed people. While some have compulsory insurance, others don’t have to pay into the statutory pension fund. This means that they can voluntarily save for retirement—but they often don’t. To avoid falling into old-age poverty, it’s best to get started with your pension insurance now, even if your monthly contribution is small.

Planning ahead when you’re self-employed

How much money you should save for retirement depends on a variety of factors. What kind of lifestyle do you want to have when you’re old? What’s important to you? If you want to travel a lot or aim for a high standard of living, you’ll need more money. So, the first step is to draw up a budget. Being aware of your current monthly expenses gives you a good idea of your needs in old age. You’ll most likely still need to cover many of your current costs like rent, electricity, groceries, and transportation when you’re in your retirement years. Plus, you may have new expenses for medication, dentures, and more. Other factors, such as inflation, can also eat away at your savings. 

Remember: right now, you’re earning the money that will also cover your monthly “income” in your old age. After all, most of us want to retire at some point! Suppose you retire at 67 and live to be 87. If you still have 20 years—or 240 months—of retirement ahead of you, you can use your current monthly budget to calculate roughly how much money you need to have saved by the time you retire. With a monthly budget of €2,000, that would be €480,000! Luckily, you don’t have to earn that amount all by yourself. There are several ways you can automatically grow your money—like through self-employed insurance.

Options for pension insurance when you’re self-employed

There are many ways to provide for old age. Most people think of the statutory pension, but it only applies to certain occupational groups. Alternatively, you could take out private, unit-linked pension insurance or open a savings account. Or, you could rent out your property, take out disability insurance, or independently invest in funds, ETFs, or shares. Whether you choose interest-bearing accounts or private insurance, these pension models will ensure that you have enough money available in old age—definitely more than if you just squirrel cash away under your mattress. And, the more diversified your savings are—meaning the wider you spread your money—the safer it’ll be. Let’s take a closer look at pension insurance for the self-employed! 

Do self-employed people have any compulsory insurance?

As we mentioned, compulsory insurance only applies to certain self-employed groups, such as freelancers. If you work in the arts or journalism, or if you’re a midwife or a craftsperson, you have to pay into the statutory pension fund. For artists, this is handled by the Artists’ Social Security Fund (Künstlersozialkasse), through which many self-employed people also pay for health insurance. Members of regulated professions such as lawyers, architects, or doctors belong to professional associations. They, too, have compulsory insurance and pay their contributions to their association’s pension fund.

On the other hand, if you want to start your own business, such as a café or online shop, the insurance for your retirement is not regulated by law. In 2016, Germany’s coalition government decided to include all self-employed people in compulsory insurance, but no law has been passed yet.         

The statutory pension

If you’re self-employed but not covered by compulsory insurance, you can still pay into the German pension fund voluntarily. But does that choice make sense? The answer is often yes! It’s possible that statutory pension insurance will become mandatory in the future. The earlier you start paying in, the better. That’s because you have to meet a minimum insurance period or a minimum deposit amount, in order to benefit from a statutory pension later on. Plus, the statutory pension is safe compared to unit-linked options, and also cheaper, because there are no brokerage or management fees to pay. 

You can set the monthly amount for voluntary insurance yourself, as long as it’s within a certain range: the minimum is €83.70 and the maximum is €1,311.30. The earlier you start paying in, the smaller the monthly amount can be. You can download more information about the advantages and requirements from the Deutsche Rentenversicherung website. 

The Rürup pension

Alternatively, you can opt for the basic pension, also known as the “Rürup” pension. This is private insurance for the self-employed that is subsidized by the state and backed by capital reserves. For many people, it’s more attractive than the statutory pension, because the latter is financed by the people who currently contribute to it. However, this kind of pay-as-you-go approach could become difficult in the future as the population ages and more and more people receive pensions from the fund. Besides, the amount of the statutory pension is simply not enough for many people to cover their living costs. That’s another reason to invest as broadly as possible—for example, by taking out disability insurance or spreading your money out across different investments. 

Self-employed retirement provision with CLARK

Good advice is invaluable, especially when it comes to self-employment and insurance. Traditional insurance brokers often charge a hefty commission if you take out pension insurance through them. Luckily, there are also digital insurance managers like CLARK that can help you find self-employed insurance that’s right for you—at a low cost. 

You can use the CLARK app to get free, non-binding, personalized advice at any time and easily manage all your insurance policies on your smartphone. You’ll also automatically receive offers with better tariffs for contracts that you already have, such as your self-employed health insurance or your liability insurance. And the best thing: as an N26 customer, you’ll receive up to €30 if you register with CLARK and select at least two valid insurance policies for the app. Simply log in to your N26 app, go to “Partner Offers” in the “Discover” tab, and copy your personal code to register with CLARK.

Things to consider when it comes to taxes

Whether it’s VAT, business tax, or income tax, you can’t avoid taxes when you’re self-employed. This also applies to pension insurance, but here’s the good news: if you pay into a Rürup pension, for example, you can deduct the contributions from your taxes. For 2022, it’s 92% deductible, up to a maximum of €25,787 for unmarried people and €51,574 for married couples. And from 2025, self-employed people will be able to fully deduct their voluntary statutory pension insurance. Pension contributions that you pay to your professional association’s pension fund are also tax-deductible. But, private pension insurance is considered an investment, which is why you can’t deduct this voluntary old-age provision from your taxes unless you took out the policy before 2005. 

Keep in mind: when you retire, the amounts paid out will be taxed, so you’ll have to give a part back to the tax office. Think of it all as a kind of income tax, and take it into consideration when planning your budget! If you invest your money in shares or other financial products yourself, you’ll also have to pay tax on the payout later. These payouts are subject to capital gains tax, and the amount depends on your starting age, among other things. Under certain conditions, only half the amount is taxed if you have all the money paid out at once. 


Your money with N26

Whether you’ve started a business or are earning extra income as a freelancer, you always want to stay on top of your finances. Your N26 business account comes with innovative features that help you save and manage your money—all in the app. N26 Insights shows you a clear breakdown of your monthly spending and income, so that you can easily keep track of your invoice payments and business expenses.

With an N26 premium account, you can also create up to 10 Spaces sub-accounts, each with its own IBAN. You could move money into a Space for key expenses, like rent for your office. Or, your customers can make payments directly to a Space—think of it like your own accounts receivable department! With Rules, you can automatically set aside money in Spaces, so you’re prepared for taxes and other important payments. Don’t have an account with N26 yet? Compare our checking accounts and open your 100% mobile business account—without any paperwork and in just 8 minutes!

By N26

Related posts

These might also interest you
Woman on top of mountain with arms open.

What is financial freedom?

When it comes to your financial wellbeing, there are many different ways to feel free. We dig into the concept of financial freedom, and how to define and eventually achieve it for yourself.

A freelancer searching about expected salary with a desktop and a plant behind.

Financial independence for women—why it’s still so much harder to achieve

Poverty affects many people in old age. However, it’s most often women who struggle financially in retirement. Why? And are there any solutions to combat senior poverty in Germany? Find out more!

A freelancer searching about expected salary with a desktop and a plant behind.

Senior poverty and the gender pay gap in Germany—what’s the connection?

Poverty affects many people in old age. However, it’s most often women who struggle financially in retirement. Why? And are there any solutions to combat senior poverty in Germany? Find out more!