"Reaching retirement by age 60 is typically challenging for many"
Private pension insurance in Germany offers several advantages over statutory pension insurance, providing individuals with greater flexibility, potentially higher returns, and tailored pension plans.
Unlike the mandatory, pay-as-you-go system of statutory pension insurance, private pension plans such as the Riester and Rürup schemes allow for choice of providers and pension products tailored to individual needs and risk preferences. This personalisation extends to investment choices, with the potential for higher pension payouts depending on investment performance.
One of the key attractions of private pension insurance is the additional tax benefits, particularly in retirement savings contracts like Riester or Rürup. Contributors can benefit from lower taxes in retirement, and in some cases, contributions made to private pension insurance can be claimed up to a certain amount in the tax return.
Moreover, private pension insurance offers a level of independence from the "Umlageverfahren" (pay-as-you-go system) of statutory pensions, reducing dependence on demographic developments affecting the state pension system.
Statutory pension insurance, on the other hand, boasts wide coverage and stability, with mandatory contributions ensuring a pension regardless of investment risk. However, it may leave gaps for those with interrupted or insufficient contribution periods, and the pension payouts are generally more modest compared to private pension insurance. Voluntary contributions can help close these gaps but remain within the framework of state pension rules.
In the realm of private pension insurance, fund-based options offer higher return opportunities than conservative investments, while still providing more security compared to direct investment in equity funds. The choice of contribution guarantee in fund-based pension insurance affects the level of security offered.
Independent intermediaries, such as insurance brokers, can assist with the concrete product selection for individual life and financial planning. They can also provide comprehensive risk management advice and sensitize customers for sustainable and long-term financial planning.
In summary, private pension insurance serves as a complementary layer to enhance retirement security beyond the statutory pension's guaranteed but generally more modest income. It offers customisation, potentially higher returns, and individual control, addressing coverage or benefit gaps that statutory pensions may leave. However, it is essential to understand the implications of taxation, the choice of contribution guarantee, and the role of independent intermediaries when considering private pension insurance.
Individual investors can reap tax benefits from private pension plans like Riester or Rürup, with lower taxes during retirement and the possibility of claiming contributions up to a certain amount in their tax return. Additionally, private pension insurance allows for personal-finance management through choice of providers, investment choices, and tailored pension plans, offering the potential for higher pension payouts.
