Riester subsidy calculator – and a lot of confusion

The ninth part of the series deals with the alarmingly different results of Internet Riester subsidy calculators from financial service providers.

The Riester pension has meanwhile become an important guarantee for premiums in the insurance industry. From the customers’ point of view, the high level of state Riester incentives in the qualifying phase is likely to be a decisive factor in their willingness to take out a policy. Since the end of 2008, not only prospective pensioners but also prospective owners of owner-occupied property (so-called Wohn-Riester) have benefited from the Riester subsidy options. This is motivation enough for financial service providers – from pension insurers to building societies and sales companies – to make Internet users aware of the level of the Riester subsidy. If an Internet user now tries to find out his possible Riester subsidy via the subsidy calculator, he will be surprised. Although the individual Riester subsidy does not depend on the provider (of the Riester subsidy calculator), this is precisely the impression given.

The benchmarks are all over the map

This starts with the amount of the basic allowances. In one subsidy calculator the maximum basic allowance is 154 euros per person per year and in the other only 153 euros. In one subsidy calculator all child allowances of all children in the family are taken into account, in the next only some and in the third none. In some subsidy calculators, 300 euros of child allowance are added for children born from 2008 onwards – in others, only 185 euros.

The reference values for the calculation of the allowance are all over the place. Some only take into account income that is subject to compulsory pension insurance, others also take into account equivalent income (e.g. civil servants’ salaries) and others take into account all income – including rental income and capital gains or income from self-employment of the spouse who is only indirectly eligible. Still others calculate the Riester subsidy only if there is exactly one household income. It is also no longer surprising that there are again Riester subsidy calculators that only calculate the household subsidy if both spouses have an income subject to pension insurance.

If the calculation of the allowance subsidy already differs from provider to provider, the calculated tax subsidies differ even more dramatically. For this article, a few dozen financial service providers were selected and their Internet Riester subsidy calculators were each fed with four identical test cases (see charts on the following pages) and the results for the current year were compared. If bars are missing in the graphs, the calculation was not possible. All providers were asked to comment, and in particular to assess whether any input errors or misunderstandings may have distorted the information provided by the provider. The results are astounding. There are no two providers with the same results. This quickly makes it clear that at most one provider can shine with correct information and all the others are wrong. What is shocking, however, is how widely the results differ. The spread of results reaches almost 800 percent and the largest absolute differences in euros are even four-digit figures – for the year 2009 alone. An analysis of the results shows that there are often so-called “pattern” errors. The most important of these errors are: n Data collection errors – occur when important input options are missing, n Calculation errors – usually occur due to ignorance of legal requirements Care errors – often occur due to negligence.

An example of a care error is provided by Basler Insurance, which explains on its results page:

“The calculation is carried out on the legal regulations of June 2001”

Over the past eight years, there have been several tax reforms and some changes in allowance levels that were promptly excluded from the results. Maintaining grant computers seems to be an underestimated problem. The new entrant bonus, which has been granted since the beginning of 2008, is only taken into account by a few subsidy calculators. Incidentally, this also applies to the “Reference Allowance Calculator” of the Deutsche Rentenversicherung Bund (www.deutsche-rentenversicherungbund. de), which does not provide any input option for the consideration of the career starter bonus. Entry-level employees are promptly denied their bonuses. The most common source of errors is related to the lack of input options.

Apparently, many providers are concerned that a large number of input requirements will deter the user – and are deleting indispensable input fields. A prime example of this is the tax incentive fields. Apparently, most providers do not realise that the reference values for the calculation of allowances and tax incentives are different. For the calculation of the supplementary allowance, the income subject to GRV (or equivalent) of the direct beneficiary alone is decisive – in addition to further entries such as child benefit entitlements or age. All income subject to income tax is important for the calculation of the tax allowance – including that of the spouse. If the necessary basic data for the tax incentive cannot be entered in a Riester incentive calculator, there is a risk of incorrect results. In some cases, only income relevant for allowances is recorded. In the table, these are marked with “x” in the row “Allowance income”. With three exceptions, none of these providers collect additional information on income that is important for tax purposes. Miscalculations of tax incentives should therefore not come as a surprise. Other subsidy calculators only ask for income and leave it up to the user to decide whether this means only the income that is important for the subsidy or the income that is important for the tax subsidy. In the table, these providers are marked with “(x)” in the row “Allowance income”. If the values for both types of income do not coincide, there may be incorrect allowance calculations or tax calculations – and quite often both. The evaluations for the four test cases are clear evidence that such errors – and even with glaring deviations – can occur. Three providers (AWD, Badenia and Hamburg-Mannheimer) have recognised the differences in the reference figures for allowances and tax incentives but have only insufficiently solved them. All three require taxable income (zvE) – but hardly any interested parties know their taxable income for the current year. If you can calculate this, you don’t need the tax incentive information anymore. If the zvE is known, a look at the tax tables is sufficient.

Concentration on what is really important would be advisable

One of the intriguing findings of the table is that every survey need was identified by at least one provider – only no provider identified all of them at the same time. It is also surprising that unnecessary entries are often made, such as gender, tax class, number of monthly salaries, retirement age and amount of holiday pay. Concentrating on really important inputs would have been more advisable here. Another pattern error is based on the belief that at most years of birth need to be recorded for applicants and children. Apparently it seems to be unknown that for a child born on 1 January 1991 no child benefit will be paid in 2009 and thus no child allowance will be granted – assuming the usual 18-year period of eligibility. However, for a child born on 3 March 1991, both child benefit and a child allowance will be paid in 2009. The same applies to the new entrant bonus. There will be a follow-up in the near future, as some providers such as Debeka and Deutscher Ring have declared that they will revise their subsidy calculators. If this were indeed to happen, this article would have already fulfilled its purpose.

by Dr. Johannes Fiala

by courtesy of

www.all4finance.de (published in Versicherungsmagazin 05/2009, pages 54 – 58)

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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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