Statutory pension: When voluntary contributions are worthwhile

Retirement provision - Statutory pension: When voluntary contributions are worthwhile

Many people hardly have to worry about the most important component of their retirement provision. For them, contributions for statutory pension insurance are simply deducted from their salary. But not everyone is compulsorily insured there. Self-employed people, freelancers, housewives and househusbands in particular have to make different provisions for old age. One option is to make voluntary contributions to the pension fund. This not only entitles them to a lifelong pension payment, but also protects surviving dependents with a widow's and orphan's pension.

Nevertheless, Andreas Irion, Deputy President of the Federal Association of Pension Consultants, sometimes has to do a lot of persuading when giving advice. This is because many people have a bad feeling about the statutory pension. Yet there is a lot to be said for voluntary insurance, Irion calculates: "Pension savers often recoup the contributions they have paid after around 20 years. That's less than the life expectancy after retirement according to statistics." It pays off even earlier if you factor in tax benefits and possible pension increases. The German government expects an average annual increase of 2.6 percent over the next 15 years, according to the latest pension insurance report. Future pensioners will also benefit from this. This is because their entitlements, which they buy today with voluntary contributions, will become worth more and more as a result of the increases.

Private pension insurance is hardly as fast as the statutory pension. In an earlier comparison, Stiftung Warentest calculated that with some policies, policyholders have to live to be over 100 years old before their contributions are paid out to them as a pension. In the opinion of pension consultant Irion, there are therefore no fair alternatives for a lifelong pension. Nevertheless, he does not recommend voluntary pension insurance for everyone. Anyone who is likely to have a shorter life expectancy due to health problems, for example, is better off keeping their hands off it. The statutory pension is a bet on a long life. "Even if you might need your money soon, it's better to invest it elsewhere. Payers can no longer access the contributions in the pension fund," says Irion. A payout in one go, as offered by private providers at the start of retirement, does not exist with the state pension. Experienced investors may find alternatives with higher returns.

Contribution amount can be changed

However, if the advantages outweigh the disadvantages, housewives, househusbands and the self-employed can use voluntary contributions to plug their pension gap. To do so, they must submit an application to the pension insurance company, but can structure their cover flexibly. Everyone decides for themselves how much and for how long they pay in. With a new application, the contribution amount can be changed at any time or the voluntary insurance can be terminated. The only condition for the contribution amount is that the payment must be within a specified range. The minimum contribution per month for 2024 is around 100 euros, with a maximum contribution of 1404 euros. As a rule, contributions are transferred monthly or collected by direct debit. However, it is also possible to pay contributions for the entire year in arrears. The deadline for this always runs until the end of March of the following year. "This gives you more flexibility and, as a self-employed person for example, you can wait and see how the year has gone and how much money is left over for your pension at the end," says Irion.

Voluntary contributions are made even more attractive by the fact that they can be deducted from tax. Since last year, the full amount can be declared to the tax office - up to a maximum of 27,565 euros. Couples who are jointly assessed can claim double the amount. Depending on the level of income and the contributions chosen, the tax office will pay a large chunk of the pension. In return, taxes and social security contributions are payable on the pension payout later on. However, these are usually lower than during your working life.

Advice is necessary

The tricky thing about voluntary contributions is that it is not yet possible to say exactly how much pension they will bring. "The exact values will only be determined later. In particular, how much a purchased pension point will be worth when it is paid out," explains the pension consultant. At present, it is only possible to give an approximation of the entitlements that voluntary contributions will bring. In 2024, one pension point will cost around 8437 euros as things stand today. One such point currently corresponds to a monthly pension of 37.60 euros. This pension value usually increases every year in July when the pension is increased.

Calculators on the Internet, such as the one provided by the statutory pension insurance scheme, can help with an assessment. However, they are no substitute for advice in advance. For example, with the German Pension Insurance or with a pension consultant who charges a fee. It also makes sense to work out what tax benefits are available with a tax advisor or an income tax assistance association.

Editor's note: This article first appeared in "Capital".