Deferred compensation as a retirement provision
More and more employees are using deferred compensation in the form of direct insurance to a retirement provision.
There are many providers of direct insurance. Among the best-known providers are Debeka, Allianz, Hannoversche, Cosmos Direkt, Huk-Coburg , Aachen-Münchener, Zurich Deutscher Herold , HDI-Gerling, HanseMerkur, Deutscher Ring and Axa.
Direct insurance through salary conversion: Secure tax advantages now!
Advantages of deferred compensation as a retirement provision
- Combination with supplementary insurance, for example occupational disability insurance possible
- in the accumulation phase, you benefit from considerable tax advantages and savings in social security contributions,
among other things, because the contribution is deducted directly from the gross salary
- there is no crediting to the unemployment benefit one and two
- Employee decides for himself on the product
- Direct insurance contract can be transferred to the new employer when leaving the company
Disadvantages of deferred compensation as a retirement provision
- the disability pension becomes lower
- the old-age pension is getting lower
- sickness benefit decreases
- no loan or termination of the contract by the employee possible
- Payment is made at the earliest at the age of 60
- full taxation of the pension during the pension phase
since all the figures are calculated from the gross earnings, which of course is reduced by the waiver of remuneration.
The reduction of the sick pay would have to be compensated by a daily sickness benefit insurance while one has to accept the reduction of the unemployment benefit. Funds as a pension fund comparison
As an alternative to deferred compensation, Riester, Rürup or private pensions, a fund might also be interesting.
With a fund, many investors pay into a huge bowl full of money. This money is managed by a fund manager in order to make more money out of it in the financial market (but it can also be less!). The fund manager invests investors’ money in many different financial stocks, which he believes will increase in value in the future. If you have acquired shares in the fund at the beginning of the year for 1,000.00 euros and the fund shares are worth 1,200.00 euros at the end of the year, this is 200.00 euros return per year.
Compare the different funds here:
(Fund comparison powered by TARIFCHECK24 GmbH) Which old-age provision is cheaper, private pension insurance or deferred compensation?
Due to the tax savings and the savings in social security contributions, the deferred compensation over a longer period of time is definitely cheaper. Over a shorter period of time, private pension insurance can be cheaper.
Suppose savings on payroll tax and social security contributions were 50%. An invested amount of € 200.00 would then only amount to € 100.00 less net on your payslip (due to the above savings). A future pension of € 1,000.00 would be taxable later, but taxes in old age are low. In addition, the health insurance would be due in full.
In this fictitious example, you would receive € 600.00 net.
In the case of a private pension insurance, the investment amount would have to be invested from taxed money subject to social security contributions. With the same net expenditure, only € 100.00 could be invested. This would result in a pension of € 500.00. The more favourable taxation would result in a net pension of € 483.00.
The deferred compensation would thus be € 117.00 better than the private pension insurance.Simplified fictitious example of deferred compensation:private pension Deferred compensationBrutto wage € 3 000.00 € 3 000.00Transformation–– € 200.00Remainration€ 3 000.00 € 2 800.00 Deductions
50%50 %50 %(simplified)– € 1 500,00– € 1 400,00Net wage € 1 500,00 € 1 400,00./. private pension insurance – € 100,00–remain€ 1 400,00€ 1 400,00
in case of later pensionPension € 500,00€ 1 000,00 Deductions– € 17,00– € 400,00Net pension€ 483,00€ 600,00
In the case of the payment conversion, the employer would pay € 200.00 per month for the employee to an insurance company.
From your gross salary or capital-forming benefits, you can pay up to 4 percent of the contribution assessment limit (2011: 2,640 euros per year) tax-free into your old-age pension plan. This happens automatically in your payroll. The contribution flows into a pension insurance.
Any employee may request the conclusion of direct insurance through deferred compensation if the employer does not offer a pension through a pension fund or pension fund.
By the way: A free e-book to download can be found on www.anwaltarbeitsrecht.com .
Advantages of direct insurance at a glance
- Hartz IV-sicher
- Tax exemption for contributions
- Freedom from social security
- Taxation in retirement at the lower personal tax rate
- Survivors’ protection
here it goes on with Riester pension