Retirement planning with annuity purchase instead of life insurance or sovereign wealth funds with cash cover

– How the state can ensure the efficiency of retirement planning for the middle class –


After 31 years of work, average earners will only receive a basic pension (social welfare level, with up to less than 758 euros per month) – low earners would have to work 63 years in social security for this (wrote the FOCUS). From 2030 onwards, up to more than 40% of pensioners are expected to become a case for the basic security pension.


Pension levels have been falling for decades

The statutory pension is financed on a pay-as-you-go basis. This implicit public debt means that current or future taxpayers and contributors will be
of the Deutsche Rentenversicherung Bund (DRV) finance the current or future benefits. For years, contributors have received a pension forecast
from the DRV, without taking into account further pension reductions already provided for by law in the future, and without deduction of later contributions for health insurance
and income tax. This is reminiscent of casino bangsters who also didn’t tell their customers that if derivatives were (practically rarely) 100% redeemed, there would still be levies.


Riester or Rürup plot?

Never one can make a financial service provider a reproach, if zig million citizens paid their savings into Riester or Rürup contracts, because this
is based on a political decision by the government. The payments for basic pensions and Riester contracts are predominantly invested in government bonds – which the specialist
explicit government debt, also with taxpayer liability. The question of which states will say when – beyond the minus interest rate – is as exciting as a whodunit.
there will be no more redemption of the government bonds either. This has already happened – for example, when it was decided by law in Vienna that (retroactively) the guarantee of the federal state of
Carinthia for the subordinated bonds of HypoAlpeAdria-Bank. Germany has also prepared for this, at the suggestion of the European Union, through so-called “CAC clauses”. And, of course, it would have been much cheaper to pay the money straight to the state (i.e. the DRV) through higher contributions. The legislator forgot
to prohibit the purchase of unsafe government bonds in the case of Riester and Rürup.


Frictional losses destroy a good retirement plan

Insurance companies, for example, collect the money, pass it on to banks, and the banks lend it to governments at home and abroad – everyone gets a margin. Also
costs are incurred at every level, risks are to be covered by equity, shareholders want a profit on it, and the intermediary a commission. With today’s
ratios, this inevitably offers a negative return outlook in the long term. Life insurers are guaranteeing less and less – and even these guarantees are not being
are increasingly no longer considered safe, as life insurers are also increasingly seen as being at risk. Pension savers, who are increasingly realising this, are therefore foregoing
often forgo additional old-age provision altogether, even if this inevitably leads to old-age poverty.


Live today – save later

In the banking casino there are departments for gambling and betting – thanks to the European regulations (called Solvency II and Basel) you can bet there without equity capital on more
or less risky government securities. If it goes well, the shareholders profit – if it doesn’t go well, the taxpayer pays via his liability for European
institutions (called ESM and ECB). Critics then speak of capitalizing the profits – and socializing the losses. This is not a “zero-sum game.”
but by delaying (maturity transformation) the insolvency of ailing banks and states as a politically intended planned injustice,
to the younger generation, to be seen as liable debtors.


Many a pensioner who expects benefits from his or her pension fund, Riester or Rürup contract will later find out that the risks were too great and the
pension is therefore regrettably (foreseeably) now to be reduced. The press department will then laconically note “Surely you didn’t expect the poor Greeks to be
or Spaniards really pay you your pension in full and on time in the end?”. In any case, the Federal Court of Justice will not deal with this issue.
(BGH, judgment of 08.03.2016, file no. VI ZR 516/14).


Are bank bankruptcy and debt cut threatened with death penalty as taboo breaking?

The banker Herrhausen died an unnatural death. A later successor referred to this fate, which is why he called for an (explicit) debt cut for ailing
States would reject. In Europe, (almost) every bank was declared systemically important and rescued after the financial crisis – just as every euro country has so far not been rescued by
debt cut and interest rate hike was consolidated, but rescheduled. The EU’s Maastricht Treaty provided for the states’ own responsibility for their budgets
(so-called no-bail-out clause, i.e. EU no-assistance). Whereas savings banks and Landesbanks (including the bankruptcy of WestLB) rely on ‘institutional liability and guarantor liability
of the state, a guarantee was effectively introduced in the EU for the survival of banks, however ailing they may be. The guarantor is the ECB (and the ESM),
who, almost like in a planned economy, also keep zombie banks alive and buy up junk securities. In private law, one would move from the unlawful contract to
Speaking to the detriment of third parties – to the detriment of the taxpayer seems to work, even if this has become an ongoing issue for constitutional judges. Because since Brüning
frowned upon government financing through the printing press (fiscal policy through up to more than medium-term financing, instead of only short-term monetary policy) leads to
to problems in the future.


The fairy tale of the liability of bank shareholders and savers (bail-in)

Politicians like to claim that taxpayer liability (bail-out) ended after the subprime crisis. In fact, however, the bail-in is limited to 8% of the
Bank Balance Sheet Total. If you subtract about 5% from this (the shareholders’ equity), you are left with a debt ratio of about 3% (at the expense of the bank creditors, i.e. the savers):
The rest continues to be borne by the taxpayer.


The risks of credit institutions are systematically increased because, in effect, the ESM and the ECB (without insurance premium as with CDS contracts, and without liability with
equity capital of the bank) is continuously available for the banks’ losses by buying up junk securities. There are certainly good reasons why, after
current situation, the employees of these “institutions” enjoy immunity – perhaps later with the prospect of customary fairness in court?


Negative interest and cash ban

It is hardly surprising that the world’s largest reinsurer is evading negative interest rates by already storing cash and gold in vaults – just as already
some banks. The ECB’s negative interest rate is described by experts as implicit debt relief – in Switzerland this is also referred to as WIR money, and reminds
remembered the former local economic miracle from Wörgl (Austria) by having its own barter currency with a time-limited value.


It is easy to overlook the fact that in the last 40 years the real interest rate (interest minus inflation) has not been positive in more than every second year.
It is therefore questionable whether money was really suitable for storing values – or rather for speculation and war financing?


The Greeks – especially the Spartans – were at any rate hostile to the value-storing function of money in order to promote the economy of the polis of trade.
and therefore for a long time only allowed worthless money, e.g. made of iron, as a medium of exchange in their city states. Only to finance the war in the Peloponnesian
War they needed money of value – partly borrowed from the Persian king.


It can also be overlooked that it would be a stroke of the pen for the legislature to remove the non-profit status of selected institutions in order to tax their assets
or to expropriate for the common good, Article 14 of the Basic Law. Politicians, too, are said to be resourceful in their adversity – including the elevation of
of formerly charitable treasures. The plundering of temple and church treasures was always a tried and tested means of raising money. Pilate, out of lack of funds, had the Jerusalem
Confiscate temple treasury to build a water pipe.


Up to more than 25% secure poverty pensioners?

Through the “demand and promote” agenda, provided with the monstrance of a – convicted of embezzlement and several million bunga bunga damages liability – protagonist,
a political party has dismantled itself. What was once up to less than 10% precarious work has now become up to more than 25% of the population – including a hand-to-mouth living situation without a cent in savings. Also in the future up to more than 40% basic security pensioners offer no guarantee, for Biedermänner without
increased arsonists.


Not to mention a youth population that in some places in the EU is bureaucratically described as the “Lost Generation” at up to more than 50% in volume. This means for the
funded old-age provision – including Rürup and Riester – a not inconsiderable write-off risk.


Preprogrammed old-age poverty for all?

It is a nice diversionary tactic to accuse the Greeks of having all but eliminated the perhaps 4,000 tax evaders according to the so-called “Lagarde list”.
…and left them alone. It is also well known in this country that government personnel are lacking (also) to collect taxes evenly. Nevertheless, the tax volatile
wealthier private individuals will in no way make a significant rescue contribution. Banks, and their tax evasion advisors for clients have long been known to the authorities
– it’s just a matter of time to follow up here.


In contrast, there have been reports titled “Offshore Leaks” and “Lux Leaks” which revealed that corporations may be paying as little as less than 1% in taxes on their profits.
pay here. If it is true that they turn over about 70% of economic output (GDP) domestically, the federal budget could more than triple. But individual
Politicians said that this problem could not be solved nationally. Do such politicians also think that one should not control at our borders which
terrorists set foot on our soil and what bombs are in their luggage? The reports about tax CDs, at least, seem harmless in comparison.


Life annuity for state financing and as a retirement provision

The authors of the German Civil Code (BGB) have incorporated the life annuity into civil law in just three paragraphs (§ 759-761 BGB) since the year 1900, and the
Rest left to the jurisdiction as well as the imagination of the citizens. However, current civil servants’ pensions could be financed, for example, by taking new life annuity obligations from the
State sold to the citizens. The cash value of the annuity does not count as government debt in the EU, whereas the purchase price for the annuity counts as income.


This can be covered by revenues, e.g. from infrastructure (transit fees, tolls, etc.), or simply from taxes. Who pays for debts, interest and redemption
can also promise a life annuity for money. What works for the purchase of real estate on an annuity, early inheritance or transfer of a business is
also practicable on a large scale. This would quickly transform official government debt into invisible implicit debt.


Such annuities are also at least as well-funded as life insurance. This is because their capital cover also consists of government debt and corporate bonds,
that is, the ability to remain solvent.


Raising capital through the sale of annuities for the private sector

What is right for the state, municipalities, or infrastructure companies like Dobrindt’s Bundesautobahngesellschaft, is just as right for other business enterprises and even
private house builders: raising money by selling annuities. Our city treasurers have been doing this for more than 500 years, and have used it to promote the expansion of municipal
infrastructure in the late Middle Ages. This provides an annuity that is both secure and guaranteed for life and is higher than any life insurer can offer.
can offer.


Even if the seller of the annuity had to account for it under the HGB, the liability value of the annuity obligation to be accounted for would be less than what would be required under
life insurers as the fair market purchase price of the annuity. This means that the seller immediately generates a profit of e.g. 15 – 20 %,from the sale,
can use it to strengthen its equity capital, pay taxes or can use it to pay a brokerage commission. It is the better and cheaper, moreover in the long term
calculable alternative to borrowing, without the risk of interest rate changes.


Either immediate or deferred annuities can be sold. That is, today the purchase price is collected, but the pension payments do not begin until
in a few years, maybe up to more than 30 years. The optional indexation of annuities in line with the cost-of-living index ensures that the purchasing power of the annuity is maintained.
of the pension.

The Carta Mensch Foundation, for example, has developed corresponding freely configurable models for private individuals and local authorities.

This appears to be ideal for long-term investment projects that will only yield a return at a later date. E.g. also for student loans or research funding or tax breaks
in the sense of tax deferrals, as in the case of early special depreciation allowances, or in the integration of refugees until it pays off.


Supported pensions through state annuity sales

In addition, the legislator could also grant tax benefits for life annuity purchase prices within the framework of regulations for a basic pension or Riester pension, even with allowances.
These tax breaks, in turn, can be funded simply by selling more life annuities with them. Later, when the annuities are paid out, they are taxed,
for income tax purposes, or at source as an allowable deduction of, for example, 25 %.. This also makes the sale of life annuities a tax deferral and savings model
designable, incl. Allowances for low earners and children as a Riester alternative.


It is also possible to use these funds to promote housing construction, in the manner of Riester anyway. Municipalities – but also private companies – can, through their own housing companies
Sell annuities, the purchase prices of which are invested in low-cost housing, e.g. also for refugees, without explicitly taking on debt. Even a land register
Hedging of the life annuities is possible. Whether through this or through state liability, such life annuities are superior to life insurers’ offers in terms of security,
which should create a lively demand.

Money for annuity purchase is quickly and sufficiently available

It would be conceivable, for example, to mark with a cross in the annual income tax statement that one would like to have the refund immediately converted into a state or “state-related” life annuity.
Likewise, for example, the child benefit, or part of the salary (especially for civil servants). The same applies to other employees as a variant of deferred compensation.


It could also be interesting for companies to outsource their occupational pension obligations and thus balance sheet risks in this way. With a legal basis, this would also be possible, for example, with discharge from debt.


Even life insurers themselves and pension funds could cover their pension obligations in this way or, with a legal basis to be created, withdraw from them altogether.
free. Insurers thus relieve themselves of the solvency capital requirements and their interest obligations as well as the longevity risk and thus gain
greater freedom of action again.


Voluntarily as an offer to the pensioner the annuity purchase would always be possible, to which e.g. a state liability, one of the federal highway company or a land register security
of the pension is perhaps preferable to so-called guarantee claims on an insurer, which can be reduced indefinitely with BaFin approval in the event of insolvency. For example, the optional lump-sum payment of the private pension insurance can usually be used to buy better private or state annuities at the start of the pension.


Annuity sales: an old and modern idea with potential

The sale of life annuities is suitable for the state, local authorities and the federal states, but also for companies of all kinds to collect capital. Politicians have used this potential to
Debt relief and deleveraging of the state have not yet been seen or used at all. For private pension savers, it can improve and simplify retirement planning. He profits from future investments not through interest and repayment, but a life-long annuity. This can greatly reduce government debt and also protect against a
future rise in interest rates.


Where life insurers see long-term interest rate guarantees and fixed lifetime annuity commitments as an expensive risk to be hedged with additional solvency capital, they will
Investors in infrastructure, among other things, see for themselves improved security against interest rate changes and a long-term planning capability that tends to save them risks.
The interposition of life insurers, banks and the capital market – between the pension saver and the investing state or company leads to inefficiency,
expensive friction losses, cost driving and money wasting.


The offer of state or private secure annuities will also appeal to those who see life insurance as a money-loser. The with it
The improvement in retirement income will continue to support demand, economic strength and tax revenues in future decades and reduce poverty in old age.
and thus the need for basic state security.


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

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About the author

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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