– When a funded pension would be comparable –
The Deutsche Rentenversicherung Bund (DRV) lets its insured know that voluntary contributions in particular lead to an annual pension of 5.18%. In many cases, it is nonsensical to compare returns, as this would require consideration of the increasing payouts, including increasing life expectancy. The answer to the question about the return is: “Wait until you are dead, then we can work it out !”.
Voluntary contributions to the statutory pension
You can pay into the DRV voluntarily, or on application, even if you are otherwise obliged to insure in a pension scheme, as well as optionally in the case of a mini-job, but also after the start of the pension when drawing a partial pension.
The 2014 contribution rate to the statutory pension insurance (RV) was 18.9%, the average salary was EUR 34,857, of which 18.9% results in EUR 6,588 in contributions. For this you get one pension point and 28.61 EUR monthly pension. In terms of the contribution, this is 5.21% per year. With a subsidy of 7.3% for PKV-insured persons – members of the private health insurance – even 5.59%. In the case of people insured under the statutory health insurance scheme (GKV) – members of the statutory health insurance scheme – after deduction of health insurance (KV) and long-term care insurance (PV) – without children: 15.5% + 2.3% less 7.3% allowance – there is still 4.66% net. It’s even more worthwhile for 2015, as the contribution rate drops to 18.37%.
Voluntary contributions to a funded life insurance policy
80% of the contribution (annual maximum: EUR 22,172 for single persons or EUR 44,344 for married persons) is deductible as a special expense in 2015, and 70% of the pension is taxable when the pension starts in 2015. This can increase the ratio net after tax again significantly.
An immediate annuity with a German life insurer, with an annuity starting at age 65, would currently pay a guaranteed annual annuity of only 3.95% on the premium, and 4.91% with non-guaranteed surpluses. In the event of death, the contributions would be refunded minus the pensions paid, while the DRV would pay a widow’s pension in the event of death – the two can be roughly compared. In the case of private pensions, there are normally no tax advantages for the contribution (except possibly in the context of pension expenses, if there is still something tax-free), but in return only the low income share is taxable for the pension. It becomes – with members of the health insurance (KV) of the pensioners – no KV/PV of it due, it gives however also with PKV-insured or voluntarily GKV-insured no subsidy.
If the private immediate pension is a basic pension, the amounts stated are also comparable for tax purposes with a pension from the DRV. Without surpluses, therefore, the private pension is far behind the DRV, with hoped-for surpluses only just up. The pension dynamics (pension adjustment) are roughly comparable in the private/basic pension and in the DRV gross.
Designing survivor protection
Persons without surviving dependants can increase their private pension somewhat by waiving repayment in the event of death – in this case, the pension would also end with death in the DRV.
For unmarried couples, the survivor benefit would be designable only in the private pension. In the case of a basic pension and DRV, you would have to insure it separately, e.g. via a term life insurance policy.
The “yield” in the DRV can be increased by being PKV-insured or having a very young spouse with a high life expectancy. Muslims can spread the risk that the widow will die quickly after her death by chance. Hindus, on the other hand, do not need a widow’s pension if they follow the custom of widow burning. However, prenatal diagnosis has already greatly reduced the number of poorly treated women in India. The fact that survivors have continued to receive the pension by packing the bones of the pensioner in a rucksack has already happened in the land of the many – supposedly living – centenarians.
Basic security pension despite Riester provision
However, up to more than 25% of the population does not even need to think about returns or payouts, because they are no longer able to put anything aside. Those who will in any case have to expect a minimum pension in future according to the model of basic security need not hope to supplement their income via the funded Riester pension, as these benefits are currently fully offset.
Spreading risk instead of speculating on supposedly higher returns
As a rule, returns advertised by financial service providers, including their forecast calculations, are by no means certain, and at best open up later possibilities for lawsuits for damages or reversal. Instead of optimizing returns that are supposedly dependent on the future, it usually seems more sensible to spread the risks.
In principle, there is nothing to be said against planning equal parts from DRV, company pension (direct commitment), funded pensions (basic pension or private pension), third-party rental, owner-occupied residential property, other capital investments in real and nominal values, as well as earned income. This can be supplemented by flexibility in the start of pensions, especially for the self-employed, or a trend towards second jobs. In addition, one can still buy a life annuity dynamized with the cost of living, as it is also offered by financially strong foundations, or alternatively a hereditary lease, secured by land charge.
Above all, it is essential to structure this overall at a level that allows a larger proportion to be reinvested flexibly. This follows the observation that a usual savings contribution of around 20% of income alone leads with increasing frequency to a pension below the level of basic security. Those who are already unable to make provisions for old age because they need their income to live on must bear in mind that they will have to manage with far less later on.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.pt-magazin.de (Published in issue 6/2017, pages 8-9)
www.experten.de (published 10/27/2017)
www.experten.de (published in ExpertenReport 10/2017, page 79)
published on www.alterskompetenz.info on 17.08.2017
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About the author
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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