Improved, but often too careless

In May and June 2009, we tested a total of 50 Internet Riester subsidy calculators – with alarming results. Only two test persons survived the by no means unusual test cases without errors. The ghost drivers among the computers formed the majority! That percentage has since dropped, as a retest showed.

It is quite frightening that the financial services industry can make such a fool of itself with the Riester subsidy calculator. In view of these results, the “Financial Times Deutschland” ran the following headline in June 2009: “Online calculators for Riester pensions fluff up” and the “Versicherungsjournal” aptly asked: “Which Riester subsidy would you like?” Almost any Riester subsidy level seems to be possible.

You just have to find the right wrong calculator. It is astonishing that different group insurance companies not only use different Riester subsidy calculators but that these promptly calculate very different subsidies – mind you with the same test cases (for example Ergo, Generali). The same applies to associations such as savings banks.

Here, the selection of Riester subsidy calculators ranges from questionable, meagre information (Sparkassen-Finanzportal) to exemplary solutions (Sparkasse Hildesheim).

Offer calculators calculate more incorrectly than Riester calculators

But sometimes a provider manages the confusion without outside help. For example, the subsidy information provided by the separate Riester subsidy calculator often differs from that provided by the Riester offer calculator of the same insurer!

As a rule, the offer calculator calculates even more incorrectly than the Riester calculator, since it is more difficult to reproduce changes in the law in tariff and offer calculators than in “simple” Riester subsidy calculators. In recent months, there have been some improvements in the Riester subsidy calculators. But the ghost drivers still form the absolute majority. It has shrunk somewhat, as some subjects preferred to switch off their Riester subsidy calculator.

Many of them had announced improvements as recently as the spring. The justifications for the shutdown varied. They ranged from the statement that it had been recognised that for legal reasons it was not allowed to make any statements about tax subsidies, to statements that the person responsible had not been in the company for years, to the – sudden – realisation that the operating company had been sold or that the click rate was too low. Of the remaining Riester subsidy calculators, 70 percent entered the post-test unchanged.

Twelve Riester subsidy calculators were changed – mostly improved. Without exception, all subjects who had already made a positive impression in the spring made improvements.

Only five computers survived the test cases well

But not all changes were sufficient. Just five computers have survived the test cases exemplary and error-free. These are the Riester subsidy calculators from AWD, Bundesversorgungswerk, LVM, R+V and Sparkasse Hildesheim.

But not only the differently wrong promotion prognoses let the advice-looking for despair with the unsatisfactory calculators, but already the different input requirements irritate the user. Some examples: If one Riester subsidy calculator refuses to calculate if there is only one earner in a married couple, the next one goes on strike if there are two earners.

In one calculator the first names of the children have to be entered (mandatory field) and in the other calculator the number of children is sufficient. Many computers do without plausibility checks. Thus, entries are possible as childless single parents as well as those of two indirectly eligible spouses. The same applies to aid. Usually they are missing when they are especially needed.

For example, the user sometimes has to find out for himself that the previous year’s income inquired about only refers to the income portion of 2008 that is subject to pension insurance, while the question for 2009 formulated in the same way refers to all income subject to income tax except for investment income subject to final withholding tax. It is not uncommon for the subject to be unaware of the differences.

Only a few have improved their aid. Provinzial Nordwest is one of them and is still exemplary in this respect.

Almost every conceivable error can be found By far the most frequent survey error is the failure to distinguish between income subject to pension insurance (important for the Riester allowance) and the remaining income subject to income tax (important for the Riester tax allowance).

Almost every conceivable error can be found in some computer. In addition to the survey errors, there are also calculation errors – for example, that tax tables from 2007 (!) are used or that wage tax calculations are carried out which fundamentally distort the results for families with children.

Some of them avoid this survey and calculation problem by limiting themselves only to the information on allowances (e.g. Bausparkasse Mainz, Mannheimer Versicherungen, Provinzial Nordwest). At the latest when only the allowance of the current year is displayed, the question arises as to the usefulness of the calculator. The advice seeker expects added than a animated allowance table.

Information often extremely poor

Therefore, it is not only the quality of the data collection and calculation that is alarming, but often also the meagre amount of information provided. Three out of four calculators limit themselves to providing funding information for 2009 and, if necessary, 2010. Compared with a premium duration measured in decades, the sole figure for Riester subsidies in 2009 is more than meagre.

This seems to have been seen by some subjects as well. As a way out, they simply rolled over the Riester subsidies in 2009 into the future. In the case of child allowances, it is then implicitly or even explicitly assumed that the child allowances of the year 2009 “will also be granted in the entire period under consideration”. However, this only applies to disabled children. Some do it more skillfully – but not really properly.

They reduce – not always without errors – the future allowance subsidy by the omitted child allowance and increase the tax allowance by the same amount. However, these false update practices can be easily exposed. To wit: If you enter the data of a single, childless Riester-eligible person and the tax allowance for 2009 does not change in the following years, the calculator reveals itself to be a deceptive manoeuvre.

This does not happen with the five test winners. They have passed all test cases for future funding without complaint. The other calculators either lacked information or were dramatically wrong. This means that just ten percent of the calculators checked meet the expectations of a person seeking advice who wants to know how high the total Riester subsidy is during the term of the contract – if possible in comparison with the total premium expenditure.

The different results of the surveys as well as the meagre information provided by the non-test winners cast considerable doubt on the competence and credibility of these providers. It is doubtful whether such incorrect information on subsidies is the sole reason for the current slump in completions. But that they are adding to the doldrums rather than helping to overcome them is unquestionable. In this respect, the wrong calculators do a disservice to old-age provision and its stronger demand in Germany. However, Riester subsidy calculators differ not only in terms of forecast quality and scope of information, but also in terms of their acquisition support, which was not part of the scope of the audit.

Here again the test winners shine. Sparkasse Hildesheim supplements its Riester subsidy calculator with a complete pension check from the Lower Saxony Savings Bank Association, which can be used to identify pension needs. Many test winners – such as LVM or AWD – supplemented the (contract-based) Riester incentives with additional state tax incentives.

For a well-off married couple, LVM clearly shows how high the Riester contributions will be over the entire term (121,800 euros) and how much the state contributes: a modest 9,000 euros in allowances and 46,000 euros in Riester tax incentives. In addition, there are still amazingly high tax reliefs due to the Retirement Income Act, whereby only the future tax reliefs are taken into account, to which the customer cannot yet be accustomed.

The tax reforms of the economic stimulus packages I and II will bring in a further 16,000 euros. This means that almost 28,000 euros in tax savings are available, whereby all Riester premiums were financed by state subsidies alone. If the Citizen’s Relief Act had already been taken into account here, the purse would have been filled with unspent investment funds of almost 100,000 euros.

K
founders are unintentionally investing in their retirement poverty.

Most of the Riester subsidy calculators examined are content with clumsy references to the allowance subsidy or even the Riester tax subsidy for 2009. This reduces the workload for the programmers of Riester subsidy calculators. But great acquisition opportunities are being missed.

This not only harms the financial service providers, but even more so the customer. Unenlightened, he consumes the large government tax subsidies intended to build up his individual retirement savings and unintentionally invests in his retirement poverty.

Dr. Johannes Fiala and Dr. Wolfgang Drols

by courtesy of

www.versicherungsmagazin.de (published in Versicherungsmagazin, issue 10/2009, pages 44-47).

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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