Retirement Planning Costs: Saving Money on Private Pension Insurance
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
Over the course of their lives, people earn money and create a standard of living that accompanies them for decades. On reaching retirement age, however, this standard collapses for one in three pensioners due to a lack of financial education and insufficient provision. The reasons for this are many and range from a basic pension that is too low to dubious fees charged by supposedly good insurance policies from the past. So that you can maintain your desired standard of living after retirement, in this article we explain which retirement planning costs arise from insurers and commission-based products compared with a net fund policy (Nettofondspolice) and a net basic pension (Nettobasisrente). This will help you recognise unwanted cost items and better assess retirement planning products.
Neo Capital supports private individuals in building wealth over the long term and in a tax-optimised way. We act as independent intermediaries and compare products from all providers on the market for retirement insurance. Together with our network of tax advisers, we also design provision that makes optimal use of your individual situation. Thanks to our many years of experience working with high-net-worth clients, we know how private retirement provision can be optimally structured even after poor pension insurance contracts have been taken out.
The net fund policy explained simply: the costs of your contributions
Financial products and insurance policies consist of the costs of the benefits and the remuneration for the intermediary. These acquisition and distribution costs are built into the contributions of most products, which makes a transparent presentation of the actual net policy difficult. By comparison, policyholders can opt for a net fund policy, which shows the adjusted amounts for the contract and a separate fee for administrative costs. The difference is that policyholders get an optimal overview of their contributions and know which costs are actually incurred for private retirement provision. Commissions and fees are thus taken out of the actual contribution for the financial product. Since administrative costs for most financial products do not increase with the size of the holding in the investment fund, better returns can often be achieved with a net fund policy. This is particularly evident with positions in the portfolio that grow over the term until retirement. Due to the compound interest effect, most policies without separately shown contributions cost more and more money over time. This shows that, in a direct comparison, retirement provision through private pension insurance with a net fund policy generates more yield over its term.
Using the advantages of ETFs with the net basic pension
Retirement provision in an insurance wrapper comes in various forms: as a basic pension (Basisrente, also known as Rürup pension), as a Riester pension or as a company pension scheme. With the net fund policy, the difference is limited to the elimination of the contributions for the intermediary. The adviser does not generate any acquisition and distribution costs within the financial product itself, which becomes particularly noticeable over the investment period, especially in old age. The compound interest effect allows the insured person a fundamentally better starting position than is the case with contracts with acquisition costs. As with any form of retirement provision, it becomes apparent with increasing age what growth has actually been achieved through the adjusted contributions. Another advantage of the net fund policy is the low risk in the event of early cancellation. While a contract with fees for its intermediary often contains a proportion of the commission paid in the first five years, net contracts can be cancelled at the value of the contributions actually paid in. In the first case, the payout amount on early cancellation is often lower than the payments made up to that point due to the effective costs.
Neo Capital: private pension insurance in the investor's interest
As you can see, there are numerous factors to consider when taking out pension insurance. Anyone wishing to achieve the best return opportunities at the start of retirement should keep an eye on the costs of the various pension insurance policies as early as when taking them out. It often makes sense to pay commissions directly in the form of a fee and in return let private retirement provision work without built-in charges. Only in this way can you continue to enjoy your desired standard of living in old age without having to accept deductions in your return. Are you interested in advice on private pension insurance? Our team prepares you ideally for the start of your retirement through an actuarial analysis of the options on the market. By structuring your retirement provision in good time, we succeed in increasing your pension by sometimes six-figure amounts without forgoing benefits from your insurer. Find out more on our website or get in touch for a no-obligation consultation. Together, we will find out how the costs of your private pension insurance can be reduced through a suitable contract with a net fund policy.