Basic pension as a permanent danger of misadvice?

The basic pension is sold by the millions as a tax-saving model. Where documentation is provided at all, however, it is not uncommon for it to lack references to tax burdens in old age, which are precisely when the standard of living is noticeably lowered. This year, up to 22,766.40 euros in contributions can be paid.

The crooked figure is due to the fact that payments into the basic pension have been dynamisable since 2015 – coupled to the full contribution rate of the statutory miners’ insurance West (24.8 percent) up to the contribution assessment ceiling. Of this, 82 percent can be deducted as special expenses this year. That sounds good, but basic pensioners currently have to pay tax on their pension benefits at 72 percent. Voluntary statutory health and nursing care insurants also pay the full contribution.

In addition, the assets of the basic pension formed by contribution payments may not be inheritable, transferable, lendable, alienable or capitalisable, requires Section 10 of the Income Tax Act. One of the legal requirements for garnishment protection is that only an annuity is promised.

In many cases, however, the basic pension is attachable because the law (Section 851c of the Code of Civil Procedure) has not been complied with in all respects. For example, depending on the age of the policyholder, the total amount paid in may not exceed 256,000 euros, ordinary termination must be excluded and, in the event of death, only the spouse or children may be entitled to draw.

However, a basic pension is not required for garnishment protection. This can also be achieved with the appropriate design of a classic annuity insurance: For the attachment protection in the pension phase, it is sufficient that it is an annuity. For the accumulation phase, it is sufficient that no surrender value is paid out due to the lack of a death benefit. In the case of a classic annuity, even a lump-sum payment is possible, and the subscription right in the event of death is also clearly

more liberal. To prevent the lump-sum benefit from being attached in advance at a fixed reference date, it may be “taxably agreed”, for example, on application in the event of marriage, divorce, building a house, acquiring a pet, giving up a job.

Then no bailiff or insolvency administrator can get hold of the capital payment.

The individual needs of the customer and the case law of the higher courts are decisive.

Indeed, there are courts that consider the lump-sum option to be subject to attachment. Others interpret the respective insurance contract in such a way that the lump-sum option is highly personal and thus unseizable. By linking the right to choose the capital to such highly personal decisions, the money is rendered unusable for the creditors, but secured for itself. This is different with a basic pension: This can certainly be seized in advance.

What happens if creditors want to seize the basic pension during the savings phase?

Then the debt continues to accrue with interest and costs until retirement begins.

This ends up being much more expensive: first, the creditors collect the full pension for up to ten years. The tax office also wants the taxes on the garnished amounts. Whether the basic pensioner ever has anything from his “seizure-protected” basic pension capital depends on whether he lives long enough. Such financially unpleasant consequences can be avoided if pension provision is structured correctly and more flexibly, without any basic pension at all.

Basic pensions usually turn out to be nonsense on closer inspection because they are inflexible, carry the risk of incorrect tax planning and the same attachment protection can be achieved with flexible private pensions. The Federal Court of Justice ruled that the funds required to pay into “seizure-protected” private pension contracts are not seizure-protected in addition to the normal exemption amount in the event of seizure and insolvency (Ref.: IX ZB 181/10).

On the other hand, compulsory contributions to professional pension schemes or to the statutory pension insurance would be eligible for consideration, in the sense of an increase in the garnishment-protected income, especially in the case of self-employed persons.



by Dr. Johannes Fiala



by courtesy of (Issue 02_April/May 2016_portfolio international, Page 32)


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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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