This is the first post in a series looking at advice failures in retirement planning.
Users of consulting software can thus check their software for these errors. Last but not least, the legal consequences are shown.
The series begins with a very common mistake – namely, the failure to distinguish between old and new widow/widower law in statutory survivor benefits for the surviving spouse. The calculation of this survivor’s pension is complex. It is determined by two important partial calculations – namely the determination of the pension before imputation (basic value) and the determination of the imputations of further income by which the basic value is reduced ex officio.
The old law is usually much more favourable for the survivor – with an otherwise identical income situation. The base value is higher, and little income is imputed. Under the old law, no investment income, no rental income and no pensions (such as Rürup pensions) are offset – under the new law, they are, and to varying degrees. Even in average cases, a pension under the new law may be less than half the pension under the old law. This is important for the intermediary not only in the (mandatory) pension analysis, but also in the provision of advice. In principle, a Rürup pension considerably reduces a statutory survivor’s pension under the new law (due to offsetting), whereas it is completely disregarded under the old law.
It is therefore possible that under the old law the same Rürup pension clearly beats an alternative Riester pension in terms of return and under the new law (because of the crediting of the Rürup pension and the non-crediting of the Riester pension) is clearly inferior. If the intermediary fails to take such considerations into account, he commits an advisory error which can easily be proven later on the basis of the advisory record.
Errors in software often “pre-programmed
Although the use of software is advisable, it often leads to “pre-programmed” imputation errors. An indication is the missing entry of the wedding date. If (at least) one of the spouses has been married before the 2 January 1961 and was the marriage before the 1 January 2002, the old law applies – otherwise the new law applies. If one of the spouses has died before 2 January 1961, it is unclear whether the new or the old law must be applied without an entry option for the wedding date. In the “Sales Software Award” of Versicherungsmagazin, the lack of an option to enter the wedding date was a sure sign of intolerable calculation deficiencies in the respective consulting software. This is an easily recognizable alarm signal for the intermediary.
If the wedding date can be entered, this does not yet prove the subsequent correct calculations. Here, only the TüV certification brings more safety. The intermediary is threatened with the economic destruction of his existence, because the pecuniary loss liability insurer rarely has to cover such damages. Returns or forecasts are regularly excluded from VSH coverage. In addition, courts tend to assume that the intermediary is “aware of the incompatibility with proper professional practice” on the basis of such errors: This means that the intermediary is working in the “uninsured area” – even if the pension advice or insurance brokerage would be expressly named as an insured activity in the VSH terms and conditions. For the agent, another realization is also painful: for recourse, he would have to sue the software manufacturer later. This can take time and costs money at first. And he will have to accept contributory negligence (up to 100 percent).
by Dr. Johannes Fiala
by courtesy of
www.versicherungsmagazin.de (published in Versicherungsmagazin, issue 9/2008, page 65)
