The Rürup pension was sold as a tax-saving model in which savings made by paying insurance premiums during the savings phase are naturally pre-calculated by the agent. However, if documentation has been prepared at all, it often lacks the disadvantages of tax burdens in old age. The misadvice will already be that in old age one usually needs every cent and just then every avoidable tax burden will noticeably lower the standard of living.
In 2015, up to 22,172 euros in premium payments in Rürup pensions can be 80% deducted like special expenses – if you are then allowed to pay tax on up to 100% when drawing your pension in old age, as well as paying contributions to health insurance if necessary, it must be obvious to compare the basic pension with a classic life insurance policy (LV) or pension insurance (RV) from money that has already been taxed. A person who is paid a living wage can raise taxes more easily than a pensioner who is threatened by poverty in old age. As early as 2030, more than a third of pensioners will be able to apply for the basic security pension so that the minimum subsistence level is available to them.
Disadvantages of the Rürup pension avoidable
The assets in the Rüruprente formed by premium payment may not be inheritable, transferable, lendable, alienable or capitalisable (§ 10 EStG). By law (§ 851c ZPO), it is required, among other things, that only a pension is promised in order to obtain protection against seizure.
In many cases, however, the basic pension is attachable because § 851c ZPO is not fulfilled in all points. All that is needed, however, for attachment protection or insolvency protection is a suitable design of the insurance contracts – completely without a basic pension – as a tailor-made suit for the classic pension insurance: for the same attachment protection in the pension phase, it is sufficient that it is a pension. For the savings phase, it is sufficient that no surrender value is paid out due to lack of death benefit. Mediators would have to master these basics if they wanted to avoid misadvice.
Freedom of seizure of private pension provision even without a basic pension
A lump-sum benefit can be provided for if a classic pension insurance is used. Other third parties (not only surviving family members) may be authorised, it may also be assigned or pledged or loaned. In order that the lump-sum payment cannot be attached in advance at a fixed reference date, it may be agreed by the policyholder in a taxable manner:
For example, on application in the event of marriage, divorce, house building, purchase of a pet, quitting your job – and all the results that no bailiff or insolvency administrator can achieve to get the capital benefit. This becomes a tailor-made suit because it depends on the individual needs of the customer and the higher court jurisdiction.
This is better than a lump-sum settlement (only subject to the condition of reaching a certain age), if this lump-sum option is not very personal but attachable. The aim is to make the capital unusable for the creditors, but to recover the capital if it has not been seized in advance, which is precisely not possible with the basic pension and protection against seizure under Section 851c of the Code of Civil Procedure.
Optimisation of the insurance benefit
Here, insurance customers can regularly have the obligation of the agent to pay damages for incomplete advice decided by court by means of a declaratory action. The exact extent of the damage will only become apparent or can only be determined at a later date. If it is structured correctly without a basic pension at all, the pension will be strictly based on the pension – for example, if there is a threat of attachment – or work with irrevocable preferential treatment so that the goal of family provision and the avoidance of poverty in old age is achieved as well as possible.
Another approach is to provide supplementary benefits in kind – not only in the event of a need for long-term care – and benefits in kind. If, for example, a trusted third party is favoured, a pension plan that is then no longer in the form of an insurance policy – also tax-free or tax-privileged – can be presented via this trusted third party as a sign of family or civic commitment. While personal services are completely unseizable, benefits in kind provided by an employer could be valued favourably at the so-called non-monetary remuneration value.
Insurer advertising leads astray
The common statements on the attachment security of the basic pension in the savings phase solely due to the lack of payment of a surrender value and due to the lack of death benefit are correct – but they are only half-truths if court practice and the alternatives for structuring the pension are concealed.
For although perhaps half of the saved capital would be enough to pay the creditors, and thus half of the pension would still remain, with the basic pension the debt continues to accumulate with interest and costs until the start of the pension. From then on, the creditors first of all collect up to more than 10 years even up to the full pension, if there is still some other income that is not subject to seizure.
The tax office will still want to have the taxes on the seized amounts, and will use the basic pensions paid out at the latest after the other creditors have been satisfied. Whether the basic pensioner will then ever see some of his “seizure-protected” basic pension capital again may depend on whether he can hold out long enough. Such consequences can be avoided if the right flexible arrangements are made without a basic pension.
On closer examination, Rürup pensions usually turn out to be nonsense, because they are inflexible, involve the risk at the end of wrong tax burden planning, and because the same attachment protection can also be achieved with more flexibly designed pensions, which may even have tax advantages. This is due to the much more favourable taxation of the share of profits of classic RVs instead of full taxation of Rürup contracts, which more than compensates for the only partial deduction of special expenses.
Consequently, customers of the basic pension will be aware of the intermediary’s liability for damages, and will therefore be able to bring an action first of all to establish the more or less probable later damage as a pensioner, in order to avoid the statute of limitations.
Disadvantages in case of seizure and insolvency
The Federal Court of Justice (BGH, decision of 12 May 2011, file no. IX ZB 181/10) decided that the funds required for payment into “garnishee protected” private pension provision contracts are not protected against seizure in addition to the normal tax-free amount in the event of seizure and insolvency. The consequence is that corresponding private contracts are no longer saved – the acquisition costs including commissions then often lead to the de facto worthlessness of such payments for provision.
On the other hand, compulsory contributions, including those on application, to a professional pension scheme or the German Pension Insurance Fund could be taken into account, in the sense of increasing the attachment-protected income, especially in the case of self-employed persons.
Even such widespread gaps in advice on alternative ways of arranging Riester and basic pensions lead straight to the liability of intermediaries and consultants.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
with friendly permission of www.bindereport.de
published in “Bindereport” (issue 04/2016), pages 36-37
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About the author
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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