Survivors rub their eyes when the survivors’ pension of the German Pension Insurance (DRV) is reduced to zero after three months. This regulation – which was last tightened in 2002 – affects marriages entered into after 2002 or those where both spouses were born after 1962. Then 40% of the additional net income is offset, i.e. deducted from the survivor’s pension. The insurers’ advertising of “own provision” for wives then proves to be a sure loss-making business.
Only the social assistance level is protected from reduction by a tax-free allowance
Only a subsistence minimum is spared by means of an allowance, namely income of 755.30 euros p.m. in the old federal states and 696.70 euros p.m. in the new federal states. Only tax-exempt income (e.g. unemployment benefit II, basic income support in old age, in the event of reduced earning capacity and social assistance) and Riester pensions are exempt from offsetting, i.e. deductions. The pension fund then requests a tax assessment for verification and reduction.
Private pensions and other income including occupational pensions are credited
This means that in the case of occupational pensions from deferred compensation, direct insurance, as well as private pensions, the remaining “return” – only 60% of the net amount after taxes and social security contributions may be retained – should immediately turn negative. The question is whether it makes sense to conclude or continue such contracts, or whether this effect can be prevented by timely termination and a one-off payment.
Life insurers are promoting separate provision for – married – women. For brokers and insurance agents, the question of liability arises, e.g. if such nonsensical contracts are cancelled at a loss. Likewise for employers: If necessary, this would be an opportunity to reverse direct insurance policies or deferred compensation, which would then also eliminate the burden of full GKV contributions in old age as a pensioner.
Private pensions for the deceased spouse are also affected if they provide for a pension guarantee period or a survivor’s pension, even if the surviving spouse then chooses a lump-sum settlement for this purpose. It might therefore be better to insure a higher pension from the start without a guaranteed period and survivor’s pension, or to make someone other than the spouse the beneficiary.
85% of insurance intermediaries do not record incomplete advice in the first place
If a private pensioner wants to withdraw from his contract, he will benefit from the fact that around 85% of the advice given by intermediaries is not documented. This leads to a reversal of the burden of proof in liability proceedings against the intermediary. Employers do not even mention the disadvantages of survivors’ pensions, or are advised to do so by their intermediary, as this would make the sale more difficult and involve greater expense. Intermediaries are neither trained nor educated in this, so that the prospects for reversals or compensation in such cases are likely to be predominantly good.
Even financial planners know the rules of the game too rarely
A more purposeful approach would be that the widow is poor in income and should live on the widow’s pension. Anything you make in excess of the statutory tax-free amount will be partially offset later. Of course, also the own DRV pension.
In the case of private pensions, one solution is for the wife to pay into an annuity for which she is a beneficiary, but for the life of her husband, and which then ends on his death. This pension is then higher than a life annuity in its own right, and ceases on death. So she’s better off with that. This can be covered with a separate term life insurance policy with decreasing sums from the start of the annuity to the husband.
In the case of the husband’s private pension, no guaranteed period after death and no survivor’s pension are then agreed. Instead, a higher pension is paid, for which the wife is the beneficiary, until the death of the husband.
In the case of the wife’s own DRV pension, such offsets against the survivor’s pension can be minimised by not paying anything in addition voluntarily, by applying for a pension at a later date or by initially applying for only a partial pension, which again increases the future pension entitlement.
How the rich widow becomes income poor on paper
With the capital incomes the woman can say goodbye to interest incomes and switch instead to an investment in precious metals, how even as gold savings plan Islamkonform of iFIS Islamic Capital near Stuttgart not only for Muslims offered. Rented properties can be sold in time. The wife can then gladly waive deferred compensation – or have it settled promptly.
Any type of capital (antiques, gold, jewelry, art or collectible rugs, etc.) that does not earn interest or current income, but does appreciate in value, is harmless.
Pension splitting leads directly to the fact that the widow’s pension entitlement ceases completely in this respect, so it is borderline, which is why you have to calculate carefully. This also requires expertise as genuine fee-based advice, quite independent of commission interests.
Poverty according to the tax assessment means for wives, however, that they can be rich in income until the death of the husband himself, because they have to be poor only later, i.e. only as survivors. A million or more in jewelry, gold, diamonds, owner-occupied real estate, foreign currency, or paintings and antiques is harmless, however. In the best case, income poverty can still be reshaped later, even in the case of a fiscally wealthy widow, if no earlier disposition was made.
Capital better than pension
In the case of capital income, only the income counts, not the consumption: a wonderful approach, only the income as an anticipated inheritance, perhaps still with the condition to personal care and maintenance, which the beneficiary may also buy at his own expense, if it becomes necessary.
If, however, an annuity insurance policy is taken out instead of the investment in income-producing capital, the credit for the survivor’s pension is not only determined from its income share of e.g. 18% for annuities starting at age 5, but from the entire annuity, i.e. also on the capital consumption of the annuity. This reduces the survivor’s pension up to more than 5 times more than an investment in income-producing capital – in the case of gold and diamonds, however, nothing would be credited at all.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
published in www.Finanzwelt.de on 06.08.2015
and
www.pt-magazin.de (published 08/28/2015 in P.T. Magazine)
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About the author
Dr. Johannes FialaPhD, 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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