Surviving dependants rub their eyes in disbelief when the survivor benefit paid by the German Statutory Pension Insurance (DRV) is cut to zero after just three months. This rule affects marriages entered into from 2002 onwards, or those in which both spouses were born from 1962 onwards.
In these cases, 40 percent of the additional net income is offset, i.e. deducted from the survivor benefit. Insurers’ marketing of “own provision” for wives then turns out to be a guaranteed loss-making deal.
Only the social-welfare minimum is protected from cuts
An allowance protects only the subsistence minimum, namely 755.30 euros per month in the former West German states and 696.70 euros per month in the former East German states. Only tax-free income (for example unemployment benefit II, basic old-age security, reduced-earning-capacity benefits and social welfare) as well as Riester pensions remain free of deductions.
As a result, with occupational pensions from deferred compensation, with direct insurance policies and likewise with private pensions, the remaining “return” – only 60 percent of the net amount after taxes and social-security contributions may be kept – is likely to turn negative immediately. The question arises whether taking out or continuing such contracts makes sense, or whether this effect can be prevented through timely cancellation and a lump-sum payment.
An opportunity to unwind direct insurance policies
The life insurers advertise own provision for – married – women. For brokers and insurance agents, the question of liability arises, for example when such contracts are cancelled at a loss. The same applies to employers: where appropriate, this could be an opportunity to unwind direct insurance policies or deferred-compensation arrangements, which would then also avoid the burden of full statutory health insurance (GKV) contributions in old age as a pensioner.
If a private-pension holder wishes to extricate himself from his contract, it will work in his favour that around 85 percent of consultations by intermediaries are not documented. This even leads to a reversal of the burden of proof in liability proceedings against the intermediary. The disadvantages for the survivor benefit are not named by employers in the first place, nor are they advised on by his intermediary, because doing so would make the sale more difficult and mean greater effort. Intermediaries are neither trained nor educated in this respect, so the prospects for unwinding contracts or obtaining damages in such cases are likely to be predominantly good.
Even financial planners rarely know the rules of the game
A purposeful approach would be for the widow to be poor in income and to live off the widow’s pension. Anything earned above the statutory allowance is later partly offset, including, of course, her own DRV pension.
With a private pension, one solution lies in the wife paying into a pension for which she is the beneficiary, but on the life of her husband, which then ends with his death. This pension is then higher than a lifelong pension of her own and ceases on death. She is thereby better provided for. This can be hedged with a separate term life insurance policy with declining sums on the husband from the start of the pension.
For the husband’s private pension, no guarantee period after death and no survivor pension are then agreed. Instead, a higher pension is paid for which the wife is the beneficiary, up until the husband’s death.
With the wife’s own DRV pension, such offsets against the survivor pension can be minimised by making no additional voluntary contributions to it, by filing the pension claim later, or by initially applying only for a partial pension, which once again increases the future pension entitlement.
How the wealthy widow becomes income-poor on paper
With capital income, the wife can wave goodbye to interest income and switch instead to an investment in precious metals, such as a gold savings plan offered in a Sharia-compliant form by iFIS Islamic Capital near Stuttgart, not only for Muslims. Let properties can be sold in good time. The wife can then happily forgo deferred compensation – or have herself bought out promptly.
Any kind of capital (antiques, gold, jewellery, art or collector’s carpets) that yields no interest or running income, but does appreciate in value, is harmless.
Pension splitting leads directly to the widow’s pension entitlement lapsing entirely. This approach is therefore borderline, which is why one has to calculate precisely. This too requires expertise.
Reshaping income poverty at a later stage
Poverty according to the tax assessment means that wives may, until the husband’s death, themselves happily still be rich in income, since they only have to be poor later, i.e. only as surviving dependants. One million and more in jewellery, gold, diamonds, an owner-occupied home, foreign currencies or paintings and antiques is, however, harmless. In the most favourable case, income poverty can even be arranged later for a fiscally wealthy widow, where no earlier disposition was made.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
with the kind permission of
www.versicherungsmagazin.de (published on 07.08.2015)
