Unit-linked pension insurance in Germany: funds and ETFs inside a policy, with a lifelong annuity as an option
A German unit-linked pension policy (fondsgebundene Rentenversicherung, often called Fondspolice) invests your savings in funds you choose and lets you decide at the end between a lump sum and an annuity for life. There is no guaranteed interest rate unless you buy a guarantee. For people who are new to the German system, the two things to understand are the cost layers and the tax rule that halves the taxable gain after 12 years and age 62.
Why would I use a German unit-linked policy instead of an ETF savings plan?
A brokerage account is simpler and usually cheaper to run. The policy has three features an account does not: you can switch funds inside it without triggering German tax, a lump sum taken after at least 12 years and from age 62 is taxed on only half of the gain, and you can turn the pot into an income for life. These advantages only pay off with a low-cost tariff and a long holding period. If you expect to leave Germany within a few years or may need the money early, an account is usually the better tool.
How the policy works: premium, funds, annuity factor
The insurer deducts its charges from each premium and uses the rest to buy units in the funds you selected. Depending on the tariff these are actively managed funds, exchange-traded index funds (ETFs) or ready-made portfolios. The value of your policy is the value of those units. Unless a guarantee is agreed, you carry the investment risk, not the insurer.
When the pension starts, the pot can be converted into an annuity that is paid for as long as you live. The conversion rate is the annuity factor (Rentenfaktor): the monthly pension in euros per €10,000 of fund value. Policy wordings differ on how firm that factor is. Some guarantee it in full, some only in part, and some let the insurer lower it later.
German courts have become strict on that last point. On 10 December 2025 the Federal Court of Justice held a clause invalid that allowed an insurer to cut the factor unilaterally in unit-linked Riester contracts (case IV ZR 34/25). For a new contract the lesson is simple: read what the terms say about the annuity factor before you sign, not only the brochure.
With a guarantee, without one, or a hybrid
A pure unit-linked policy puts the whole savings part into funds. Nothing is promised, and every euro is exposed to the market. Tariffs with a premium guarantee promise that at least an agreed percentage of what you paid in will be there at the start of the pension. To keep that promise, part of the money has to sit in safe, low-yielding assets.
Hybrid tariffs spread the money across the insurer's general account, a capital-protected fund and free funds, and shift between them as markets move. After a sharp fall the contract can end up mostly in the safe part and then benefits little from a recovery. The longer the term, the more a high guarantee costs in lost return.
A sensible alternative is a glide path (Ablaufmanagement): in the last years before the pension starts, the insurer moves the money step by step out of equity funds into steadier assets. Good tariffs let you decide whether and when that begins.
Costs: gross tariffs, net tariffs and fees
There are two layers of cost. The insurer charges acquisition and distribution costs plus ongoing administration, and the funds charge their own ongoing fees. If you cancel early, German law treats the acquisition costs as spread over the first five years, but the surrender value in the early years is still well below the premiums paid.
A net tariff (Nettopolice) has no sales commission built into the premium. You pay for advice separately under a fee agreement. The Federal Court of Justice has accepted such agreements (judgment of 5 June 2014, III ZR 557/13). The downside: the fee remains due even if you cancel the insurance later, and the intermediary has to tell you so beforehand.
Compare offers by the cost figures in the key information document and by the fund charges, not by the projected payout. The projection rests on an assumed return and is not a promise. ETFs lower the fund layer of cost, they do not change what the insurer charges for the policy itself.
German tax on the payout: the 12/62 rule
While you are saving, no German withholding tax arises inside the policy, including when you switch from one fund to another. Tax is due on the payout. The taxable amount is the difference between what is paid out and the premiums you paid in, and 15 percent of the part that comes from investment funds is exempt.
If you take a lump sum, two conditions matter: the contract must have run for at least 12 years and you must be at least 62 when it is paid. Then only half of the gain is taxed, at your personal income tax rate. If either condition is missing, the whole gain is subject to 25 percent flat tax plus solidarity surcharge and, where it applies, church tax.
If you choose the annuity, the 12/62 rule does not apply. Only the so-called income portion of each payment is taxable, a fixed percentage that depends on your age when payments start. All of this describes German tax for German residents. If you live elsewhere when the money is paid, the rules of that country and any tax treaty decide, so take tax advice before you move. We advise on insurance contracts, not on individual funds or tax returns.
What is covered
Investment of the savings part in funds, ETFs or managed portfolios of your choice
A lifelong annuity from the agreed start date, calculated with the annuity factor
A lump sum instead of the annuity, or part lump sum and a smaller annuity
Fund switches and rebalancing inside the policy without German tax at that point
A death benefit before the pension starts, usually the fund value or the premiums paid
A guaranteed payment period after the pension starts, if agreed
Top-up payments and partial withdrawals during the term, depending on the tariff
A premium guarantee or locking in of gains, if agreed
Premium waiver on occupational disability as an add-on
What is not covered
Falls in the value of your funds, unless a guarantee is agreed
Any particular return: projections in the quote are not a promise
The annuity factor, where the terms do not guarantee it or guarantee only part of it
Losses on early cancellation caused by acquisition costs and surrender charges
Tax deduction of premiums: that exists only for the Rürup pension and subsidised plans
Income if you can no longer work, unless a separate rider is agreed
The fee for a net tariff, which is not refunded if you cancel
Who needs it
Savers with 15 to 20 years or more until retirement who can live with market swings
People who want an income for life in old age rather than just a pot of money
Higher earners who benefit from half-taxation of a lump sum
Investors who want to change funds over the years without a tax event each time
Parents and grandparents who want to pass on assets through a named beneficiary
Who does not need it
Anyone who may need the money within ten years or expects to leave Germany soon: an account without the insurance wrapper is more flexible
Anyone who has not yet used an employer-supported company pension, or the Rürup deduction at a high tax rate
Wheel of misfortune
Spin the wheel of bad luck
Six things that really happen. The wheel picks yours and shows who pays.
Cost:
Budget policy Strong policy
See all six cases
Market crash the year before retiring, a large part of the pot, with no time to recover. Budget policy: does not pay, Strong policy: pays. Without a glide path the fall hits the full equity share. Strong tariffs shift step by step in the final years or let you postpone the start of the pension.
Insurer wants a lower annuity factor, less monthly income per €10,000 of pot, for life. Budget policy: does not pay, Strong policy: pays. If the factor is only partly guaranteed or can be reduced, the pension may turn out smaller than expected. With a fully guaranteed factor the sum stands.
Your fund is closed, moved into a replacement fund you did not choose. Budget policy: pays in part, Strong policy: pays. Basic terms let the insurer pick the replacement. Strong ones inform you in good time and let you switch free of charge to any fund on the list.
Job abroad, cancelling in year three, surrender value well below the premiums paid. Budget policy: does not pay, Strong policy: pays in part. Acquisition costs and surrender charges weigh on the early years. Tariffs without a surrender charge and net tariffs do better, but a fee already paid is gone there too.
Lump sum at 61 instead of 62, the whole gain taxable instead of half. Budget policy: does not pay, Strong policy: does not pay. The 12/62 rule is in the German Income Tax Act and no tariff can change it. A flexible start date only helps if you use it and wait.
Bonus: paying in €40,000 extra, without a top-up right, a new contract with new costs. Budget policy: pays in part, Strong policy: pays. Many tariffs allow top-ups only within narrow limits or at a cost. Strong ones take larger amounts into the running contract without new acquisition costs.
What it costs
A unit-linked policy has no price tag in the usual sense, because you set the premium. What matters is how much of it reaches the funds and what is taken from the pot each year. A few tenths of a percentage point in ongoing charges add up to a noticeable sum over decades.
What drives the premium
Acquisition and distribution costs or, with a net tariff, the separately agreed fee
Ongoing administration charges on premiums and on the fund value
Ongoing charges of the chosen funds, much lower for ETFs than for active funds
Level of guarantee: the more is guaranteed, the less is invested in funds
Term and payment pattern, regular premium or single premium
Add-ons such as premium waiver on disability or a higher death benefit
We give no cost range, because tariff, fund choice and term move the result too far. The binding figures are in the key information document and in the quote. Tax rules as of 2026.
The policy levels on the market
01
Policy with a high guarantee
A large share of the premiums is promised at the start of the pension, usually through a hybrid model. A calmer ride, but only a small part of the money is really in equity funds.
02
Policy with a partial guarantee
You pick a lower guarantee level and can change it later. More money in free funds, with protection against the really bad outcome.
03
Pure unit-linked policy
No guarantee component, the whole savings part in funds or ETFs. The strongest design for long terms, combined with a glide path before the pension starts.
04
Net tariff
A tariff without built-in commission, with advice paid by fee. Often the cheapest route over a long term, but costly if you cancel early, because the fee stays.
How to recognise a good policy
Criterion
Minimum standard
Strong policy
Why it matters
Policy charges
shown in the key information document
low charges on the fund value, no front-end load, fund rebates credited to the customer
Charges are the only part of the outcome you know for certain on day one.
Fund range and ETFs
a handful of in-house funds
a wide range including low-cost ETFs on global indices
Expensive funds inside the policy eat up the tax advantage.
Fund switches
a few free switches a year
unlimited switches and rebalancing free of charge
Over 30 years funds close, merge or simply fall behind.
Annuity factor
stated, but only partly guaranteed or open to reduction
fully guaranteed, with the better of the two factors applied at retirement
The factor decides how much monthly income the pot buys, for life.
Guarantee level
fixed at the start
freely selectable and changeable during the term, including no guarantee at all
Few people need a guarantee at 30, some do at 60.
Glide path
not available
free of charge, start and target assets selectable, can be switched off
A crash in the final year before retirement cannot be made up.
Top-ups and withdrawals
paid-up status only
top-ups and partial withdrawals without fees, premium holiday without penalties
An inheritance, a house purchase or parental leave do not follow the contract plan.
Payout in fund units
cash only
units can be transferred to your own securities account
You are not forced to sell at a bad price on the day the pension starts.
Paying abroad
not addressed in the terms
contract continues after a move abroad, payments to foreign accounts
Many expats do not retire in the country where they saved.
Insurers on the German market
Most German life insurers sell a unit-linked pension, but charges, fund lists and annuity factors vary widely from one tariff to the next. The selection shows insurers with their own product and does not indicate who we work with.
Insurer
Background
Alte Leipziger
mutual insurer with a strong broker channel
Allianz
life insurer of the Allianz group, sold through agents and brokers
LV 1871
Munich-based mutual, broker distribution
Stuttgarter
mutual insurer, mainly through brokers
Volkswohl Bund
Dortmund-based mutual, broker distribution
WWK
mutual insurer, agents and brokers
Condor
part of the R+V group, sold through brokers
Continentale
part of the Continentale mutual group, agents and brokers
HDI
part of the Talanx group, brokers and agents
Zurich
German life insurer of the Swiss Zurich group
myLife
Göttingen-based life insurer focused on net tariffs
The standard case: a monthly premium over many years, often with automatic increases. Buying at many different dates smooths out part of the market swings.
Single-premium policy
A larger amount invested at once, for example a bonus or severance payment. The 12 years and age 62 count here as well for half-taxation.
ETF policy
A unit-linked policy whose fund list consists mostly or entirely of exchange-traded index funds. Low fund charges, the charges of the wrapper remain.
Hybrid pension
A mix of the insurer's general account, a capital-protected fund and free funds with a promised minimum at the start of the pension.
Fee-based net tariff
A tariff without commission. The adviser is paid under a separate agreement that stands on its own, whatever happens to the insurance contract.
Policy for a child
Parents or grandparents take out the policy and transfer it to the child later. The term is very long, so low charges count twice.
Myth or truth
True or false?
Five things people say about this insurance. Guess first, then see the answer.
Inside a German fund policy you can switch funds without paying tax.
This is true.
True. As long as the money stays in the contract, a switch does not trigger German flat tax. Tax arises only on the payout. In a securities account, selling a fund at a profit is taxed straight away.
After 12 years the payout of a German fund policy is tax-free.
This is false.
False. That applied to contracts taken out before 2005. Today, with 12 years and payout from age 62, half of the gain is taxable. Take the money earlier and the whole gain is taxed.
With ETFs in the policy there are no more charges.
This is false.
False. ETFs only reduce the fund charges. The insurer still deducts its own acquisition and administration costs. Only the two together show what the contract costs.
With a net tariff the adviser's fee is still owed if you cancel the policy.
This is true.
True. The fee agreement is a separate contract alongside the insurance. Germany's Federal Court of Justice accepts this but requires the intermediary to point it out clearly beforehand.
A premium guarantee always makes the policy better.
This is false.
False. The guarantee protects against a bad ending but costs noticeable return over decades, because less money is invested in equity funds. Over a long term it is often the most expensive feature in the contract.
Common mistakes
Comparing offers by the projected payout instead of charges and annuity factor
Choosing a full premium guarantee over 35 years and giving away most of the return
Cancelling after a few years instead of reducing the premium or making the policy paid-up
Leaving expensive active funds in the policy although low-cost ETFs are on the list
Taking the lump sum shortly before turning 62 or before the 12 years are up
Signing a net tariff without knowing that the fee stays due after cancellation
Buying a 30-year policy while planning to leave Germany in three years
Frequently asked questions
Questions and answers
Frequently asked
What is a Fondspolice?
It is the everyday German term for a unit-linked pension or life policy.
Your savings are invested in funds you choose, and the result depends on how those funds perform.
At the end you can take a lump sum, a lifelong annuity or a mix of both.
How is the lump sum taxed in Germany?
The gain is taxable, meaning the payout minus the premiums paid.
If the contract has run at least 12 years and you are at least 62 at payout,
only half of the gain is taxed at your personal rate.
Otherwise the gain is subject to flat tax.
For the part that comes from investment funds, 15 percent is exempt up front.
Does the 12/62 rule apply if I take the annuity?
No.
With a lifelong annuity only the income portion of each payment is taxed,
a fixed percentage that depends on your age when payments start.
Half-taxation concerns lump sums only.
What is a Nettopolice?
A tariff with no sales commission built in,
so more of your premium reaches the funds from the start.
You pay for advice separately by fee.
This works best with long terms and higher premiums.
The fee remains payable even if you cancel the policy.
Can I hold ETFs in a German pension policy?
Yes.
Many tariffs list ETFs, and some consist almost entirely of them.
Check which indices are offered and whether switching is free.
The insurer's own charges come on top of the ETF charges.
Do I need a premium guarantee?
With a long term, usually not.
A guarantee costs return, because part of the money has to be held in safe assets.
A low guarantee or none, combined with a glide path in the final years, is often the better choice.
People close to retirement or uneasy about losses may decide differently.
What happens if I leave Germany?
The contract normally continues, and you can keep paying or make it paid-up.
How the payout is taxed then depends on where you are resident at that time and on the tax treaty
with Germany.
Clarify this with a tax adviser before you move,
and ask the insurer whether it pays to a foreign account.
What happens to the money if I die before the pension starts?
The insurer pays the agreed death benefit to the beneficiary you named.
Depending on the tariff this is the fund value, at least the premiums paid, or a percentage on top.
In Germany this benefit is free of income tax,
inheritance tax may apply depending on amount and relationship.
Can I pause the premium?
It depends on the tariff.
Making the policy paid-up is almost always possible:
it then continues with the existing fund value.
Better tariffs allow a temporary premium holiday or a lower premium and a later return to the old
level.
Cancelling should be the last option.
Is this the same as a Rürup or Riester pension?
No.
Rürup and Riester are subsidised and tightly regulated,
with tax relief on the way in and full taxation on the way out.
The unit-linked policy described here is unsubsidised: you pay from taxed income,
stay flexible and benefit from lighter taxation of the payout.
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