Pension: once “the yellow of the egg” – today expropriated

Pre-programmed old-age poverty despite additional private provision by those with compulsory insurance: Which is why even average earners have the best prospects of a basic pension.


Anyone who is employed as an employee until the age of 67 with a continuous income can expect to receive a net pension amounting to 50 percent of the last net income in the not too distant future, if he or she becomes a pensioner. This enables the average earner to lead a dignified and self-determined life – as expressed by the Federal Government – on a basic security level.


Old-age poverty is virtually non-existent in this country

Anyone who has a net monthly income of EUR 760 or more is not considered to be absolutely poor – over EUR 950 net he is also no longer considered to be relatively poor and if he has more than EUR 1,150 he is also no longer considered to be at risk of poverty. If the income is lower, the German Pension Insurance recommends checking whether there is a right to a basic security pension. This includes all benefits that are also paid in the case of social assistance.

For the legislator, poverty in old age seems to be conceivable only if no application for a basic security pension was inadvertently made. This includes EUR 382 for the living requirements of single persons in their own household. Spouses and life partners receive less (345 euros) and adult household members even less (306 euros), plus the warm rent for adequate accommodation – for a single person this is a room.


Legal reductions of the subsistence minimum

A reduction is made if the rental costs are too high, which forces you to move. Some municipalities also pay the estate agent to find a flat beyond the municipal boundary. In the past, they also used to pay for a ticket for the crossing to America on the Titanic 3rd class, or for sewing and cookery training followed by a trip to Deutsch-Südwest with the Woermann line with secure marriage prospects.

Something else is the crediting of all income, including, for example, income from Riester pensions. However, the single person must first use his or her assets until no more than 2,600 euros are left over. Poverty would thus be conceivable in principle if the employment office were to cut the subsistence minimum – as a sanction for refusing retraining, for example – by up to 30 percent. After all, even those who have completed an academic degree can hardly avoid retraining as welders or working as temporary workers in the asparagus fields or in other precarious jobs if they become unemployed.


The statutory pension is secure

Those who currently receive their personal pension information will be promised a pension if they have worked on average with a consistently high income and without interruption until the start of their pension at 67 in the future. In the next few years, the legislator intends to reduce the amount of the pension by 12 percent.

A further reduction occurs because only a basic allowance of EUR 8,354 is free of income tax and solidarity surcharge, so that up to 15 percent tax deduction will certainly further reduce the future fully taxable pension.

In addition, there is a deduction of up to more than 10 percent for social security contributions, such as statutory health insurance. The so-called corner pensioner with average income is currently promised a monthly pension of 1,266 euros after 45 years – in fact, in future he can expect to receive only around 950 euros net in real terms, i.e. a quarter less. Even employees with an average income of up to more than EUR 30 thousand in annual gross salary have the best prospects for a life without poverty in old age, i.e. at the basic security level.


Pension information is subject to deductions of up to more than 42 percent

Current surveys show that the younger generation in particular and those earning only up to the average are completely unaware of taxation and the amount of their expected net pension in relation to their net income – and therefore have no idea how large the gap will be in old age. Of the respondents with net incomes below 2,300 euros, only 4 percent even knew that the pension was taxed. The annual pension information appears to be so incomplete that pensioners are not even remotely informed correctly.


Pension illusions about the actual final disposable income

Only 2 per cent of the working population can correctly state that 68 per cent of this amount would be taxable if pensions started today, with an annual increase to 100 per cent from 2040. Almost nobody knows that pension increases are always fully taxable. Only 38 percent of those surveyed can correctly classify the pension level, for example that today’s 20 to 34-year-olds can receive an average of around 38 percent, while those aged 50 to 65 can still receive around 51 percent of their last net salary. However, future pension increases will not compensate for the purchasing power of the latter either, so that these pensions too will lag behind wage developments in real terms and will become less and less valuable until they too are pushed further and further towards the poverty line.

The majority of employees believe that they have made sufficient provision, and this despite ignorance of the personal pension level, in particular a further reduction of up to more than 25 percent in the net pension level – compared to those who are currently retiring. However, this is probably not being made too clear to them, so as not to deprive them of the hope of being able to close the pension gap through provision. From the point of view of the state, it is in fact sufficient if the additional provision does not secure the standard of living, but at least saves the taxpayer from having to top up to the level of basic security.


Scheduled further reduction of the statutory pension

For about 15 years, productivity in the economy has been rising without any significant participation by employees – and pension insurance contributions have remained correspondingly low. In addition, pensions were decoupled from wage increases, so that pension adjustments only took wage developments into account to a lesser extent. The future gap between pension and earned income will widen, but this is not apparent from the state pension information. It could be mistakenly believed that this was already taken into account in the figures provided, but this is not true.


Unscheduled reduction for pension chambers and pension schemes

Pension schemes as recipients of compulsory contributions and pension institutions as recipients of voluntary contributions for a supplementary pension are understood to be professional, predominantly funded pension institutions in the form of legal entities under public law.

The competent state ministries can reduce the pension or retirement benefits by order if the contribution income, capital and its earnings are no longer sufficient to finance them. This is usually established by the Court of Auditors or by an actuarial report, for example when the permanent ability to meet obligations, the establishment of sufficient technical provisions, the investment in appropriate assets and solvency are questionable.

The supervisory authority will counteract insolvency and the intervention of state guarantor liability by replacing outdated mortality tables, reducing calculation interest rates and cutting benefits and entitlements. This is permissible within the framework of so-called maladministration supervision, § 81 VAG, as confirmed most recently by the Administrative Court of Munich in its ruling of 11 May 2009 (Ref. M 3 K 07.5934). Cuts of up to more than 50 percent have already been observed.


The balance of the world debt balance is zero

Foreign debts to German investors reflect the savings of German nationals. Investors can observe how the so-called GIIPS states borrow money from savers and institutional investors, including those who would have preferred to get the money back for later retirement. This is then booked via the European Central Bank, for example.

If, however, the money is not paid back from abroad at a later date, for example because banks become insolvent and investors are allowed to pay for the “rescue” (e.g. through the total loss of bank deposits in excess of EUR 100,000), this will have an impact on the private pension schemes invested there and may almost certainly result in benefit cuts.

As far as money from abroad is only partially repaid due to so-called budget problems (e.g. because of the fall in value of government bonds), the naive saver might imagine that it is enough for a finance minister to say

“The cavalry at Fort Riley doesn’t always have to ride out, sometimes it’s enough for the Indians to know it’s there.”

In the numerous EU countries with youth unemployment ranging from 30 percent to more than 50 percent, this is hardly likely to be understood as a contribution to international understanding, especially since the last cavalry horse, Chief, was buried there in 1968. Few politicians have recognised the need for interest rate and unit labour cost convergence in the internal market since the euro states no longer have the option of devaluing their national currencies. Permanent trade surpluses boost capital exports with the corresponding risk of losses.

If deflation is to be avoided, the connection between unit labour costs via labour income and inflation via capital market interest rates must be seen. Instead, the world champion exporter is giving away his goods, as it were, via loans (i.e. assets of old-age provision savers) which may not have any real prospect of being repaid abroad, but which have provided the state with tax revenue up to that point. Since the introduction of the ECU with the announcement of the euro, the propagation of mass funded pension provision has been a brilliant business – but more so for financial institutions than for future pensioners.


Pensions from the perspective of an asset manager

Dentist Dr. Schaum has just become aware that the speculations of his pension fund (e.g. in the subprime crisis, but also the Greek and Cyprus crises) as well as the tax changes have halved his chances of receiving a retirement pension and is calming down for the time being, because it could have been even worse. And so it comes when he is told that the permanently low interest rates in Europe are also likely to reduce the level of pensions by another third. He would not have expected a basic security pension. No, that can’t be right at all – he turns to an actuarial expert and is disillusioned:

“If instead of the promised 3,000 euros I can only hope for a pension of around 1,000 euros, then I’ll have to work until the end of my life?”

He then meets an independent asset manager with knowledge of economics.

“So if you had invested a total of EUR 250,000 with me for more than 20 years, instead of paying this into your pension fund as compulsory contributions, you would already have assets of over EUR 1 million today, only if the German Share Index (DAX) were skilfully handled. Instead of the expected 1,000 euros, you would then perhaps receive a modest 3,000 euros monthly pension from dividends – and with asset consumption more than 5,000 euros, month for month”.

Dr. Schaum is at a loss – nobody has explained to him how to increase money without being lied to and cheated. To date, by comparison, it has lost more than half a million through “supplementary pensions” alone, for example closed participations, profit participation rights and private life insurance policies. Every adviser and mediator had “the yellow of the egg” in his luggage, and was a disappointment.

The asset manager calculates in advance:

“You would rather have paid 120 TEUR commissions, which had been hidden from you, than 40 TEUR for independent advice. This additional expenditure of 80 TEUR alone would already have yielded half a million more at the start of the pension with 5 percent interest.

In the end, this decision cost you so far, the small difference between 1,000 euros or up to more than 5,000 euros as a pension prospect.”


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


by courtesy of (published on 13.10.2017)



and (published on November 10, 2017)


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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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