The declining pension level is giving many people a headache. Millions of citizens fear poverty in old age, a new study shows. But everyone can become active themselves and make private provisions. There are a few ways to do this.
Almost 30 percent of 18- to 65-year-olds in Germany are very worried about not having enough financial reserves for retirement age, as a study by the German Economic Institute (IW) shows. The concern about a lack of security in old age is therefore distributed differently. Women worry more than men and divorced people worry more than single people.
According to the study, concern is particularly high among people between the ages of 35 and 64 in the lower third of the income bracket: at around 35 percent, their “level of concern” is significantly higher than in younger comparison groups. For its study, the IW evaluated data from the socio-economic panel.
“It is possible that the need for provision for people with low incomes is recognized too late,” said IW economist Ruth Schüler.
The FOCUS Online guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
In order to avoid the risk of poverty in old age, citizens should also make private provisions before they retire. There are several ways to do this, some are government funded.
Riester savers receive government grants. However, the financial aid is only available if you make your own savings: In order to receive the maximum allowance, working people must pay in at least four percent of their pensionable income – minus the state subsidy.
This is broken down as follows:
However, the Riester pension has fallen into disrepute because providers charge high costs. That massively depresses the yield. This is another reason why consumer advocates and politicians are calling for reforms. When they come is still open. Until then, thanks to the lavish state allowances, the Riester pension is particularly worthwhile for low earners and single parents with children.
Here, too, citizens receive financial aid. The bAV is considered the second pillar of the German pension system and offers several advantages:
The employer converts part of the employee’s gross salary directly into a company pension scheme. The state subsidy means that the Treasury does not demand taxes and social security contributions on these amounts during the savings phase – but not indefinitely.
In principle, a maximum of eight percent of the western contribution assessment limit may be converted tax-free per year. That is 6768 euros in 2022.
In addition, four percent of the BBG West remain exempt from social security contributions – i.e. 3384 euros.
Note: Since 2022, bosses have had to pay a mandatory employer contribution to so-called salary conversions in the bAV. The subsidy amounts to 15 percent of the converted salary, but no more than the saved social security contributions. Previously, the subsidy only applied to new contracts.
The so-called basic pension, also known as the “Rürup pension”, has existed since 2005. This is a form of private old-age provision that is generously subsidized by the state. Anyone who pays into the basic pension saves taxes. The Federal Minister of Finance waives tax revenue up to a certain maximum amount.
These are the current requirements:
The maximum tax savings arise for the self-employed – they can fully deduct the amounts mentioned. But “normal” employees can also conclude a basic pension contract. For high-earning employees, a basic pension should be particularly worthwhile due to the tax advantage.
It is important to note that employees who are subject to social security contributions cannot use the above amounts completely to save taxes. For them, the contributions to the statutory pension insurance are deducted from the maximum amounts. Both your own contributions and those of your employer. Consequence: The tax-deductible amount for the basic pension decreases – and with it the possible tax savings.
Various providers have such policies in their portfolios. However, consumers should refrain from doing so: Interest rates are currently – and will probably remain so – very low. With inflation skyrocketing, consumers end up paying more.
Employees who are subject to pension insurance can also pay additional amounts to the statutory pension insurance. The Deutsche Rentenversicherung (DR) makes this possible, so that early retirees can compensate for their later pension losses. Anyone who transfers these extra payments and later only retires at the regular age of 67, for example, can increase their state pension. However, there is one requirement: Anyone who wants to use extra payments must be at least 50 years old.
Buying pension points is particularly worthwhile in 2022. As a result of the Corona crisis, the so-called average salary of all pensioners has recently fallen – that is the basis for the calculation. Currently applies:
In the current year, a so-called pension point costs 7235.59 euros. In 2021, the amount was still 7726.63 euros – almost 500 euros higher. There is a pension point for that. According to the current value in the West, it brings a monthly pension of 34.19 euros – for life. However, the higher pension payment does not begin until the month in which the recipient would have to start their regular old-age pension. For everyone born after 1964, the standard retirement age of 67 years applies.
The pension will increase significantly on July 1, 2022 – then the value of a pension point will also increase by more than five percent. The value then climbs to 36.02 euros in the west. In the new federal states it is currently 33.47 euros, from July 2022 it will be 35.52 euros.
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Anyone who buys real estate saves on rent if they use the apartment themselves. Or he earns money monthly when he rents them out.
Even if the interest rates for building loans have increased somewhat recently, they are still relatively cheap in a long-term comparison. Anyone who relies on real estate as a retirement provision must bring a higher amount than equity with them. Not everyone can do that.
Despite the current stock market turbulence as a result of the Ukraine war: this investment offers the highest potential for long-term returns.
Instead of relying on individual stocks, it is advisable to buy ETFs (“Exchange Traded Funds” – a type of exchange-traded equity fund). They contain a large number of values and can thus cushion the loss of value of individual investments. Some ETFs invest globally. This curbs possible losses if, for example, a country’s stock market crashes – like the stock market in Moscow recently. Another advantage of ETFs: They only burden investors with low costs.
If you want to diversify your investment, you should take a closer look at ETFs on the world stock index MSCI World. They distribute their investments in around 1600 different stocks from 23 industrialized countries. Investors have several products to choose from, one established ETF is the iShares CORE MSCI WORLD UCITS ETF.
Anyone who cannot make big financial leaps should choose an ETF savings plan. Some providers offer them for as little as 20 euros a month. The following applies: If you hold out for a long time, you can save considerable amounts.
If you want to create an ETF (Exchange Trade Fund) as a savings plan, you have to open the right securities account. Compare Germany’s online banks and neo-brokers by offer, price and service for your ETF savings plan.