– When government subsidies and legal requirements later become a yield trap –

Increasing periods of employment in the low-wage sector or as a Hartz IV recipient reduce the prospects of the subsistence minimum in working life as well as later as a pensioner. While a fine may not affect the garnishment-free income, Hartz sanctions lead to incomes below the subsistence level and thus promote temporary work in particular. Not only out of ignorance many do without a supplement to their starvation wages through Hartz IV and rather choose to buy something to eat or a pack of cigarettes at the parcel delivery, after chewing coca leaves is still forbidden in this country. State subsidies for private and company pensions will hardly change anything about the prospect of increasing old-age poverty, but those who still save something from their low income for old-age provision can at least already get used to an even lower standard of living today.

The yield trap of occupational pensions

Every broker of tax saving schemes knows that fabulous returns can often only be presented by ignoring some crucial factors. With junk real estates one calculates only the first years with high fiscal depreciations for the investor – with Riester contracts one assumes annually constant allowances, and with the operational old age pension one prices the social security saving. The latter, however, is only secure for the employer – the employee, however, will later have to pay health insurance contributions alone, will be liable to pay taxes in unrecognized progression zones, and will receive lower benefits, especially from the statutory pension. This is like the “box of chocolates for half price” commercial – when you open the box, there’s just half inside.

Cutting back on consumption means saving

What is correct about the state lobbying for financial products is that the decline in statutory old-age pensions over the past decades suggests that private provision should be made. However, the question of what is worthwhile in an “absolute” sense cannot be answered across the board, because this depends very much on the individual assessment and nothing can be advised on this without a very personal stocktaking. At most, indications can be given on the question of what is “relatively” better or worse than something else, such as a Riester pension, deferred compensation or, better, a private old-age provision that is only taxed at the rate of return and is generally paid out free of social security contributions, but these depend on the individual circumstances and the framework conditions that will develop in the future. Both blanket statements about this and the usual attempts at personal calculations usually lead astray or are obviously wrong for the expert.

Savings stocking instead of yield miracles

Instead of hoping for yield-boosting effects from various subsidies and compound interest effects of the capital market, one must be prepared for the fact that old-age provision is not built up from this, but ultimately only from consumption renunciation, and the “additional effects” tend only to maintain purchasing power. Unfortunately, inflation also has exactly the same effect as compound interest – and what was not already taxed and paid into social security when saving for retirement, will be paid later on when you retire or with reduced statutory pension entitlements. The attempts of life insurers to achieve a higher return with investments in the energy turnaround are paid for by the pensioners themselves with a higher electricity bill, while the hoped-for increase in interest on their investment in German government bonds is paid for by the threat of inflation and higher taxes so that the state can also pay the interest. Ultimately, it must be reckoned with the fact that the net purchasing power that flows back in old age is just that which was previously saved net, adjusted for inflation no better than the savings stocking.

European unisex socialisation disadvantages male policyholders

The introduction of equal tariffs for men and women in Europe means up to more than 20% lower benefits for male insured persons in occupational and private pensions, despite lower life expectancy. Male insured persons and their employers can avoid this, for example, by moving to Switzerland. This has the advantage of increased stability for the insurer there already in the form of the security requirements implemented as a Swiss solvency test analogous to Solvency II, and offers the option of betting on other or different currencies – not just euros. This method is increasingly being chosen for single premiums in private pensions, also for lump-sum settlements for normal and unit-linked pension insurance policies as well as maturity benefits – and surrender values – of life insurance policies, but also for settlements of occupational pension schemes (bAV) and maturity benefits of direct insurance policies.

It should be emphasised that intermediaries, including brokers, are excluded, as they are not allowed to broker insurance policies without their licence in Germany. On the other hand, if necessary, you can call on lawyers who work on behalf of clients to help set up correspondence insurance policies in Switzerland, and on actuarial experts to check the contracts and explain how they work, which can sometimes be very different from what is offered in Germany – because there are a few pitfalls that need to be avoided professionally, which are not easy to reckon with coming from Germany.

Unisex circumvention through collective agreements contrary to EU law?

A high proportion of men (as in the group insurance contract with the male choral society) leads to higher pensions for the same contribution because the calculation is made for a specific collective and the collective does not have to have a minimum size in the occupational pension scheme, for example. This then means that such group contracts are not only more favourable for men than normal individual insurance, but also take away more men’s shares from normal individual insurance, so that premiums and benefits there are increasingly aligned with those of women after unisex.

Conversely, this means that women, who already have greater problems in achieving an adequate old-age pension, are formally deprived of the equal treatment demanded by the EU requirements. For women, this means that men can opt out of unisex redistribution by means of collective agreements, and that women will only receive largely equal treatment in individual insurance and in collective agreements for sectors and individual companies in which they are strongly represented.

Design option for female insured persons

As long as this has to be accepted as formally EU-compliant and not in conflict with insurance supervisory law, women should make sure that in old-age provision they are grouped together with individual insurers in individual insurance or in collective contracts, especially in occupational pension schemes, with as high a proportion of men as possible. They should ask employers and insurers for information on this before deciding on a pension solution. The pension for women can be increased by up to more than 10% by optimising membership of a particular group (association group insurance or employer or branch) alone.

Liability for intermediaries and employers in occupational pension schemes

Employers may be liable if, even if they have a higher proportion of women in their workforce, they unnecessarily reduce the occupational pension by means of a collective agreement or by joining a correspondingly unfavourable sectoral solution, even for the lower proportion of men in their workforce. Conversely, of course, employers with a high proportion of men are also liable if they do not take advantage of the opportunities offered by correspondingly favourable collective agreements for them, or do not switch to alternatives in non-EEA countries. In addition, insurance brokers are liable to the employer when brokering individual insurance policies with an unfavourable gender composition, as is the case with occupational pension schemes.

Charity and benevolence by employers – without any company pension scheme at all

Even with an average income of the so-called corner pensioner – currently around EUR 34,000 annual gross – and 45 years of contributions to the German pension insurance scheme, younger people today can only expect a net pension of around EUR 950 per month from the age of 67, adjusted for purchasing power. For tens of millions of future pensioners, it seems almost certain under the current legal situation that they will receive their subsistence level in the future via a basic security pension. At present, all supplementary company and/or private pension schemes, such as Riester and basic pensions, are simply offset, i.e. deducted. The layman asks himself, what is the point of saving anything at all for old age? An alternative is to organise charitable services without offsetting them against the basic security pension. Employers must ask themselves whether a charitable foundation for the increased number of genuine emergencies would not be the more appropriate solution, which does not preclude the attempt at prevention through additional occupational pension provision. On the other hand, it would be fatal to believe that preventive fire protection makes the fire brigade dispensable.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm