How to: Identify the best pension plan for myself

June 4, 2020

You are most likely aware that private pension plan is not only useful for the self-employed people. The question as to when the retirement provision should start is relatively easy to answer: Preferably as early as possible - maybe even today. How much money you should invest privately in your old-age provision depends on various factors and above all on whether you pay into the statutory pension insurance or not. And then, of course, there is the question of what kind of old-age provision options are available. Whether Rürup pension or Riester pension, unit-linked pension insurance or company pension scheme: what is hidden behind these dust-dry terms, which fill pages of incomprehensible contracts, we will tell you here. After all, the most important goal of your private provision should be to ensure that your lifelong pension is secured in such a way that it can actually cover your financial needs after your work is done. So take 5 minutes, read our article and then decide which is the best private pension plan for you.

What options are there for private pension provision in Germany?

The market for old-age provision in Germany resembles a jungle of offers: there are numerous different models for old-age provision and countless providers. The contracts are often very complex and absolutely incomprehensible for most consumers. Basically, the offers can be summarized in the following groups:

  • State pension insurance
  • Rürup or basic pension for self-employed persons
  • Private pension insurance / life insurance
  • Real Estate
  • Securities and ETFs.

We have already dealt in detail with the statutory pension insurance and its counterpart for freelancers, the Rürup pension, in an earlier blog article. Today we would like to take a closer look at the remaining options for retirement provision.

Is a private pension insurance sensible?

This depends very much on the type of pension insurance. In a classic private pension insurance, you pay regular contributions (as with the statutory RV) and receive a lifelong pension at the beginning of the pension. So the whole thing is very similar to the above-mentioned state pension options - and is therefore just as inflexible. Add to this the current interest rate situation: such a private pension insurance can only guarantee low interest rates. With a guaranteed interest rate of 0.9%, according to Assekurata only 0.1% on average remains after deduction of all costs.

With an endowment policy, on the other hand, you can have the entire pension payment paid out once at the beginning of your retirement and also protect your family in case of an emergency. In addition, you can increase your chances of higher returns if you opt for a unit-linked life insurance as an alternative to pension insurance, in which a fund investment is combined with the insurance. But be careful, because you invest primarily in securities and therefore have no guarantee of the amount of the later premiums or the interest rate. In addition, such a private pension plan often involves high costs for contract conclusion and administration, which can completely nullify the tax advantages advertised.

Our conclusion: low interest rates, high costs, high risk, no flexibility: the models "private pension insurance" and "unit-linked endowment insurance" are no longer up-to-date at all and in the rarest cases are still a suitable possibility for old-age provision.

Does a company pension scheme or a Riester make sense?

Employees can take out a bAV (company pension scheme) or a Riester pension. Although these alternatives are subsidised by the state, you should calculate in advance whether this type of private provision is worthwhile for you, as both can be quite expensive. The bAV is only really top if your employer pays the contributions for you in full, as taxes and social security contributions are incurred when you are paid out later. In addition, you have to renegotiate with every job change whether your new boss will take over the occupational pension scheme completely.

With the private Riester pension you can secure state allowances and the later payout is as good as certain - but the contract is so intransparent and inflexible that in the end you cannot say exactly whether the Riester pension will pay off for you. In fact, you should pay in at least 4% of your gross income so that you can take full advantage of the state allowances, otherwise they will be lost. Often you cannot, or only for a fee, pause your premium payments and find it difficult to change your contract.

What other pension options do I have?

Apart from pension insurance and Co. there are of course other possibilities for your private retirement provision. On the one hand, the real estate market attracts with very low interest rates for loans, which makes buying real estate attractive. However, the real estate business is not for beginners, because buying and managing real estate requires time and expertise if you don't want to take any risk of loss. And of course, you must always be able to service the loan installments, no matter how much your income fluctuates.

Another possibility for private pension provision is to invest in securities, i.e. shares, bonds, funds, ETFs. To do this, it is important to think in advance about how high the return you want to achieve should be. The golden rule is not to put all your money on one card, but to invest the money in different securities. Furthermore, funds differ enormously in terms of their profile and costs. For beginners with financial knowledge, it makes perfect sense to invest in so-called index funds (also known as exchange traded funds, or ETFs for short), which like "normal funds" are broadly diversified, but are more affordable in terms of cost and carry less risk. However, you should have a good financial knowledge in order to be able to make an informed decision.

So what is the right retirement plan for me?

The best pension plan is a mix of a solid return, low costs, flexible contribution payments (which you can access without much fuss in an emergency) and the option of a one-off lump-sum payment instead of a fixed amount paid out monthly from the start of your pension. And it's with these goals in mind that we developed Vantik.

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Matthias Rodenbücher
As Head of Operations, Matthias ensures that everything runs smoothly at Vantik. With Vantik, he wants to finally get the topic of retirement provision out of the "dirty corner" and make it accessible to everyone.

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