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Epi
@Epi
11Mon·

Company pension plans - capital leverage, compound interest effect and tax savings?

Like hopefully many of you, I have built up my retirement provision in various ways: B&H, GTAA, shares, precious metals, brokers, private pension insurance - and, to a small extent, a company pension scheme (bAV). I took a closer look at the latter recently and asked myself how much I actually want to pay in and for how long in order to get the most out of it. I'm not yet sure whether my calculations are correct, but in the end they could well mean a considerable(!) advantage over a normal broker ETF savings plan. So watch out!


The idea


I'll assume that you know the basics of the occupational pension scheme, I'll spare you that part here, everyone can read that and the many details for themselves on the Internet. However, the main feature of the occupational pension scheme is that payments are made from the gross salary. Up to 302€pM (as of 2024) are completely tax-free (approx. 50%), up to 604€pM are tax-free (approx. 25%). So I pay approx. 300€pM/600€pM into the occupational pension scheme, but I only have 150€pM (=300€x0.5)/ 375€pM (=150€+300€x0.75) less net. Or to put it another way: I pay 150€pM and save 300€pM. Sounds too good to be true? That's right. At least in part. Because in the payout phase, the state takes everything back, i.e. the tax and social security contributions saved are deducted directly from the payout amount (deferred taxation).


But wait! The shrewd Getquinler suspects hidden possibilities here. If, in the end, only the SSV contributions saved have to be repaid, then this portion could be understood as an interest-free loan from the state for old-age provision. Capital leverage - I hear you tapsen!

Then there is the tax exemption on profits during the down payment phase. Compound interest effect - ick hör dir schneller loofen!

And don't forget: the tax relief in the payout phase (partial exemption, marginal tax rate, 50% tax exemption). Example: € 200,000 profit x 0.85 (15% partial exemption) x 0.5 (50% of profits tax-free) x 0.3 (tax rate) = € 25,500 in taxes, i.e. only 12.75% tax. Tax savings are still running!

Capital leverage, compound interest effect and tax savings - let's do the math and compare a standard broker savings plan with my occupational pension scheme.


My bAV

My pension plan is from mylife (fondsrente), a net policy without commission via a fee-based advisor. The costs: 36€pa, 1% on each deposit amount, 0.2%pa on the fund assets. There are 200 ETFs/ funds to choose from, you can buy and sell them yourself via the online portal like a broker (once a month free of charge).


The assumptions

Let's take a middle-aged person who still has 20 years until retirement. She saves 150€pM or 375€pM from her net salary into an ACWI with an expected 7%pa return incl. TER. For the sake of simplicity, I leave the deposits constant. I also let this person spend the saver's lump sum on other investments (e.g. dividend shares). I also assume that the capital is paid out in full at retirement, so that all applicable taxes can be taken into account. I create the calculations with https://www.zinsen-berechnen.de/ and https://www.finanzfluss.de/rechner/sparrechner/ Of course, everyone can adapt the calculations to their own circumstances.


The comparison


Scenario 1: 150€ savings rate

bAV (€150 net deposit):

Deposits 2024-2044 (240 installments of €300 each/ net: €150): €72,000

Savings capital: €149,700

bAV costs: 36€x20 + 1% of 72,000€ + 0.2% TER = 4900€

Gross capital: €144,800

Taxes on lump-sum settlement 2044:

50% of contribution share (€72,000) = €36,000

13% of income share (€72,800) = €9,500

Net capital: €99,300


Broker:

Deposits: 240 installments of €150 each: 36.000€

Broker costs: -

Interest income: €42,100

Taxes (incl. 30% partial exemption, capital gains tax, without lump sum): 7.800€

Net capital: €70,300


Advantage bAV: €29,000 (+41%)



Scenario 2: €375 savings rate


bAV (€375 net deposit):

Deposits 2024-2044 (240 installments á 600€/ net: 375€): 144.000€

Savings capital: €306,400

bAV costs: 36€x20 + 1% of 144,000€ + 0.2% TER = 9,200€

Gross capital: €297,200

Taxes on lump-sum settlement 2044:

37.5% of contribution share (€144,000) = €54,000

13% of income share (€153,200) = €18,400

Net capital: € 224,800


Broker:

Deposits: 240 installments á 375€: 90.000€

Broker costs: -

Interest income: € 105,400

Taxes (incl. 30% partial exemption, capital gains tax, without lump sum): 19.400€

Net capital: €175,900


Advantage bAV: €48,900


Conclusion


With 150€pM savings rate in 20 years with ACWI after all costs a capital of almost 100,000€ and thus almost 30,000€ more than with a broker savings plan? With a savings rate of €375pM, almost a quarter of a million by the time you retire? You'd have to do the math with 10%pa! The advantage of the occupational pension plan quickly goes into the six-figure range. I would say that this compensates for some of the undeniable disadvantages of the occupational pension scheme: Employer-linked, payment option only on retirement, dependence on insurance.


I have never seen a comparative calculation like the one I have made here. You probably haven't either. Why not? The reasons are, in my opinion, 1. that most ETF savers are not interested in such things as occupational pension schemes, especially as most occupational pension schemes have some kind of contribution guarantees without ETF choice and with horrendous commissions. And secondly, most people who are interested in occupational pension schemes only want to take the measly employer contributions, but are otherwise not interested in investing in the occupational pension scheme. Very few employers are also not interested in the investment options within the occupational pension scheme, which they only offer out of obligation and installed at some point 20 years ago. And thirdly, the variant with lump-sum settlement calculated here is unattractive for the insurance companies, who like to advertise with a guaranteed pension and its allowances. But which Getquin investor wants a "guaranteed annuity" of approx. 3%pa, where the remaining capital in the event of death goes completely to the insurance company?


So my calculation above completely misses the intentions of the inventors and the usual players in occupational pension schemes. Perhaps this is why the capital leverage, compound interest effect and tax savings of occupational pension schemes have so far been a blind spot on the investment map (and will remain one as soon as this article has disappeared into the infinite depths of the Getquin archive).


But perhaps I have made a mistake somewhere? If so, I would be grateful if someone could point it out to me. Because if not, I would probably soon increase my net savings rate in the occupational pension scheme to the maximum subsidy amount of €375pM, make full use of the capital leverage and make my occupational pension scheme a serious part of my investment strategy (and with GTAA and a bit of luck, collect an additional half a million in about 20 years).


So: if you are not yet taking advantage of these occupational pension opportunities - where is the fault: with me, with your boss or with you? I'm curious.


Your Epi

attachment

Edit: Please also note the 2nd part on occupational pension schemes, in which I have corrected important errors in this article.

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72 Comments
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All-in-or-nothing@All-in-or-nothing
11Mon
For me, it definitely belongs in the #gqevergreens 👌🏻 Top contribution, thanks for that @Epi
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Pope Donkey XXI@DonkeyInvestor
11Mon
@PassiveInvest I've bookmarked it and will read it later.
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Epi@Epi
11Mon
@PassiveInvest Thank you! But it only belongs in the evergreens if the considerations are correct. 👍
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All-in-or-nothing@All-in-or-nothing
11Mon
@Epi From a mathematical point of view, everything looks plausible and correct to me so far. The topic of "fewer pension points in the statutory pension scheme" was discussed in a comment, and that would be the only real variable that cannot be reasonably calculated. However, the expected excess return on a bAv, as in your example, would certainly still more than compensate for the reduced payment of the statutory pension insurance, even if you offset fewer pension points. All in all, however, it can and must be said that the issue of tax-optimized bAv stands and falls with the employer. Unfortunately, a limited choice of contract/provider or similar factors immediately nullify an example, no matter how well calculated. For me personally, the situation is a little more complicated. My employer would probably allow a free choice of provider (because they wouldn't really care where you have your contract), but they can nicht🤷🏼‍♂️.
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Pope Donkey XXI@DonkeyInvestor
11Mon
@Epi Our insurance expert @Dr27589 can take another look at this. All in all, a very interesting article. I also have a company pension plan, which is worthwhile for me despite the 90% contribution guarantee due to the high employer subsidy. For me, however, it is not a contribution for #gqevergreens, as it contains more considerations and many uncertainties and is also only applicable to a minority. In most cases, the employer's offer alone is likely to fail. You have mentioned other reasons yourself or they have already been mentioned in the comments. In my view, it is therefore more likely to tempt you to take out a company pension, which in many cases does not make sense at all.
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Epi@Epi
11Mon
@DonkeyInvestor I agree with you, there are a few uncertainties in the considerations. I wrote this article to discuss and dispel them. I could have kept the matter to myself.
If the article tempts someone to take a closer look at the conditions of their occupational pension scheme or even manages to convince their employer of the mylife option or an insurance company with comparable conditions (there are a handful on the market) - then the contribution could mean a few 10k more for the pension. That wouldn't be bad, I think.
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Pope Donkey XXI@DonkeyInvestor
11Mon
@Epi Absolutely right. I also think the article is very good. Just not for me for the #gqevergreens. But getquin himself will soon be publishing an overview of the best all-time contributions. I'm sure it will find a place there. How far have you actually got with @Kundenservice?
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Epi@Epi
11Mon
@DonkeyInvestor As I said, I wrote the post for 2 reasons, 1. to point out possible errors in my reasoning (such as overlooking the lost pension points, which is probably not essential) and 2. to show one or the other Getquinler the possibility of a few 10k more for the pension (which unfortunately remains rather hypothetical for most).
Not allowing the contribution to disappear only helps with point 2.
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Daniel@Dr27589
11Mon
@DonkeyInvestor There are (unfortunately) a few mistakes.
1. you pay less into the GRV. Even if it's not that great, you'll end up with a lower statutory pension.
2. the "Mylife Fondsrente" he mentions is a private pension insurance, not a company pension scheme. Mylife's occupational pension scheme is called BOLZ (FGNBAV)
3. @Epi is confusing private pension insurance with occupational pension schemes. There are no tax advantages in the payout phase as mentioned above. It is fully taxed as income.
4. good news: SI contributions on payout do not apply to members of private health insurance. In addition, there is (currently) an exemption limit of €176.75/month - SI contributions only apply to monthly pensions above this amount.

Whether a company pension scheme makes sense or not depends in the vast majority of cases on the amount of subsidy provided by the employer. With very few exceptions, a company pension scheme is not profitable if only the statutory minimum subsidy of 15% is paid.

As Esel already mentioned: it usually fails because of the employer's offer. These are often very old contracts, sometimes with a ridiculous guaranteed interest rate and without reasonable investment options.
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Epi@Epi
11Mon
@Dr27589 Thank you for your comments.
Re 1: This omission has already been made clear to me. But it should be negligible. I estimate that it is around €10pM pension at the end.

Re 2: I simply gave the name of my occupational pension scheme. That's what it says in the contract.

Re 3: I had feared something like that. Unfortunately, I couldn't find anything on this on the Internet despite an extensive search. So what is deducted from what proportion of the payout capital in the case of a one-off payout? Approx. -50% from the contribution portion and -30% from the income portion (if that is my tax rate as a pensioner)? But why no partial exemption? 30% is more than the approx. 20% KES on ETFs.

4 Unfortunately, the exemption limit is no good. To take advantage of it, I have to transfer my entire capital to the insurance company and then I get about 3%pa on it as a pension. This is highly inefficient and a real dealbreaker for me. Hence the calculation with the lump-sum settlement only.

5 I obviously haven't understood the 15% AG subsidy yet. So specifically: if I want to pay in the €302pM net in order to pay €604pM gross into the policy, where is the employer subsidy?

Thank you for your answer!
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Epi@Epi
11Mon
@Dr27589 I have looked it up again. You are of course right, the payment of the occupational pension must be fully taxed. "With the lower income tax rate in the pension" is what it says. But if I have 300k paid out, for example, this is considered my income and my tax rate goes up. I couldn't find out what it should be. One site says 25% average, another 42% top, another 30%. There is no legal certainty at this point. One war, one left-wing party and the rate is quickly well over 50%. Potential deal breaker.

The scoop, however, is that I don't pay the SI contributions on the contribution part, as I assumed, but on the entire capital. Only 120 monthly rates minus the allowance, but if the capital in the occupational pension has increased threefold, then after 20 years of paying in I pay 1.5 times the contributions I originally saved, including inflation and rising KK and PK contributions. Potential deal breaker.

And finally, I admit that I underestimated the loss of pension points. With a 300€pM savings rate, it's probably a little over 100€pM in the end. Assuming a lifetime of 30 years, that's a lot of wood.

All in all, things now seem to be turning into the opposite in my mind: the high downstream taxation, the x-fold repayment of MK contributions and the loss of pension entitlements seem to make the occupational pension scheme a losing proposition, no matter how well it performs. The state takes back all the benefits with interest. I'll have to check this suspicion by calculation. But that would mean I need an alternative.
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Felix E.@FreshFelix
11Mon
Unfortunately, you still have to be lucky that your employer does not have any predetermined policies, as is the case with many large companies. Unfortunately, the money is often invested very unattractively with 90 or 100 % deposit protection and you pay high fees. Unfortunately, even the tax benefits and subsidies don't make up for this.
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Epi@Epi
11Mon
@FreshFelix Yes, unfortunately that is often the case. But this means that the employers are missing out on real benefits for their employees! Perhaps one or the other can be convinced?
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Golden Boy@randomdude
11Mon
Once again a great contribution!
However, I still have a few comments and questions:
1. in my opinion, the 1% + 0.2% costs of the policy are not properly taken into account. The 1% fee on deposits must be deducted directly from the deposits and the 0.2% from the annual return. This has a different effect than the flat-rate deduction from the return at the end.
2. it is also not clear to me what the 50% and 13% charges on the policy for cash settlement are based on. Are they fixed or does the individual tax situation also have an impact?
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Epi@Epi
11Mon
@randomdude Thank you!
Re 1: I deducted the 1% from the deposit amount. The compound interest effect is limited, probably less than 10€. I calculated the 0.2% costs by working out the difference between 7%pa and 6.8%pa. No flat rate.

Re 2: 50% on the contribution share, because the SSV contributions saved have to be repaid in full. There are sample calculations on the net. The 13% is the rounded up 12.75% tax on the payment of the earnings share/profits. The assumptions are given in the text, e.g. 30% personal marginal tax rate for pensioners. These parts can vary. The allowances and partial taxation should remain fairly fixed.

Incidentally, the greater legal certainty also speaks in favor of occupational pension plans because the tax conditions apply from the start of the contract (grandfathering). ETF savings plans are much more exposed to tax changes.
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Golden Boy@randomdude
11Mon
@Epi All right, thanks for the clarification!
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Mr Grumbold@Lino2501
11Mon
However, Bav is taxed at 100% at your tax rate + any full statutory health insurance and long-term care.
In addition, you must calculate the fewer pension points you receive, as you are reducing your gross.
Lg
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Epi@Epi
11Mon
@Lino2501 The taxation and repayment of the saved social security contributions is actually included in full.
The reduction in pension points is an important point that I have not taken into account. What would that roughly amount to for €150/€375 per month?
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Nils@fischit
11Mon
Well, if you're above the income threshold anyway, you won't lose any pension points. And otherwise it's difficult to calculate because it depends on your earnings.
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All-in-or-nothing@All-in-or-nothing
11Mon
@fischit would in any case reduce the imputed return on the occupational pension, but due to the expected excess return on the occupational pension in the structure described, even compared to the statutory pension insurance, it would probably always bring more additional capital to the pension than what is "lost" in the statutory pension. I once read a very interesting article on the return on statutory pension insurance, but unfortunately I don't have it to hand, but it was in a range between 2 and 3% (best case, worst case was less than 2% calculated return).
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Timo@TimoWess1
11Mon
@Epi However, the taxation is incorrect. You do not pay tax on the profit but on the entire payout. Half of the profit share is only taxed for private insurance.
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Epi@Epi
11Mon
@TimoWess1 Yup, I have corrected this in part 2. The calculation of the social security contributions was also wrong and the loss of pension points is also not insignificant.
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Timo@TimoWess1
11Mon
@Epi saw it afterwards too 🙈
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devnerd_daddy@devnerd_daddy
11Mon
@Lino2501 has already hinted at it. You have two problems with this story.
1. in the pension phase, you no longer have an employer, which means that you pay not only the employee's share of the SI, but also the employer's share. This can be partially compensated by private health insurance, because then the health insurance no longer applies.
2. you receive less basic pension in old age because you had less gross income. Of course, the contribution assessment ceiling must be taken into account here. However, very few people will even come close to it.
3. as far as I know, if you change employer, you may not be able to continue saving in the contract.
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Deleted User
11Mon
Comment was deleted
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Adel;.@tAdel
11Mon
@hero333 yo but 100% subsidy (as in the example) vs 15% makes the calculation quasi uninteresting... (I work for an insurer ;))
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NEWT@SteelAnacott
11Mon
Thank you for the very readable article!
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Epi@Epi
11Mon
@SteelAnacott Thank you! I wonder if it does anything. 🤷
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Olaf@Olaftheheino
11Mon
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Epi@Epi
11Mon
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ETFKing@ETFKing
11Mon
Great post - but as you write, there are some factors that are based on today's assumptions.
Will taxation remain the same in 20 years?
How free am I in my choice of provider/product and how profitable is this investment?
Will I stay with the same employer for the next 20 years?

My employer offers a pension fund, for example, which has yielded an average return of 3.x% in recent years. That's it for freedom.
An ETF basic pension with a tax refund is probably a more profitable investment, but of course it also involves more risk...
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Epi@Epi
11Mon
@ETFKing Thank you!
Regarding taxation: of course nobody knows what our politicians will come up with in 20 years' time However, there is greater legal certainty in the pension insurance sector. In other words, the tax laws that applied when the contract was concluded should apply. Before the politicians tackle the occupational pension scheme, it's time for ETF savings plans.

Freedom of choice: It depends on the insurance company. Mylife is quite free in its choice of products. After more than a year, I've now paid in around €5,000 and the securities account stands at around €6400. Do you call that profitable?

Regarding the employer: there are two possibilities: you have a reasonable employer or you become an employee yourself. The 3% policy you mentioned with probably around 3%pa administration costs is real rubbish from the early 2000s. I had something like that and canceled it. Maybe your employer will let you talk to him if you show him my invoice? 🤷
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WorldInvestor@WorldInvestor
11Mon
1. an ETF custody account can be bequeathed or given away to children and compound interest continues to work
2. the further performance as a pensioner if, for example, 4% is paid out annually and the rest continues to work in the ETF.

That would then be opportunity costs of a payout plan vs. having all the money at once.
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AlexanderS@AlexanderS
11Mon
Please note that occupational pension schemes are not only taxed in the benefit phase, but are also fully subject to statutory health and long-term care insurance contributions. This applies to both annuities and lump-sum payments. This also applies to benefits from contributions above the contribution assessment ceiling in the savings phase. Private health insurance avoids this problem.
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Epi@Epi
11Mon
@user6690f4ba438a4f50 I have now learned what that means. Let me make a correction.
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Epi@Epi
11Mon
@user6690f4ba438a4f50 The argument with the pKV is often mentioned. Formally it is true, but de facto you do pay the money, as you take over the employer's shares. It's just a different pot.
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AlexanderS@AlexanderS
11Mon
@Epi as far as I know, the German pension insurance also pays a subsidy for private health insurance (instead of the previous employer) ... but can't speak from experience ... I'm a youngster 🙃
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Michael Wolfsteiner@Moggwolf
11Mon
@Epi That is not correct. If you are privately insured, you do not pay any contributions during the benefits phase.
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Epi@Epi
11Mon
@Moggwolf You don't pay contributions via the occupational pension scheme. On the other hand, private health insurance is unspeakably expensive in retirement. My parents pay around 900-1000€pM. That's what I mean by another pot. I don't think it's a good calculation.
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Max@MaxlvomDach
11Mon
Thanks for the effort! I'll take a closer look at the occupational pension scheme after my studies. Before my studies, I paid €100 into the occupational pension scheme but, as you say, it was more to take advantage of the employer contributions and I didn't give it any more thought 😊
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Epi@Epi
11Mon
@MaxlvomDach It also depends very much on the contract offered by the employer. Most of them are no good. But maybe your future employer will talk to you if you present him with the arguments?
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sodium@TomCOR
11Mon
Thank you for doing so much work so that we can also benefit from your thoughts and math games, very few people do that. 👍
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Pope Donkey XXI@DonkeyInvestor
11Mon
@TomCOR take a look at #gqevergreens. You'll find lots of posts like this there
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Felix@G30G43BR4
11Mon
Your "error in reasoning" (which may not be one if you have enough income) is that your calculation examples only work for ~5% of Germans. If you do not earn above the BBG, you will lose pension points due to deferred compensation. From that point on, the calculation example is somewhat more complex and depends on your actual age.
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Rudolph@1999-topeuro
11Mon
I now believe that these models only have two winners: the tax office and the providers (AI and insurance companies). Invest the money yourself, in a world ETF if you like. Use your tax-free allowances (KEtSt) and dispose of the total sums as you wish in old age (even in the case of inheritance and gifts!). You pay the increased marginal tax rate (on the entire amount and not just 25% withholding tax) on these pensions in the relevant pension plan, the double health/nursing care insurance wherever they go I am completely out of it mentally and I advise my friends to do the same, especially if the bet on a long life seems very optimistic to me and who is then the winner should be clear to everyone!
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Thomas@ThomasGumpp
11Mon
BAV is 100% taxable in the payout phase and fully subject to contributions to statutory health and long-term care insurance (not applicable for privately insured persons)

KV can be calculated here -> https://www.test.de/Betriebsrente-Entlastung-bei-Krankenkassenbeitraegen-fuer-Betriebsrenten-5147958-0/


Pension loss can be calculated here -> https://n-heydorn.de/bav-rechner.html
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Topper H.@TopperHarley
11Mon
Brilliant article. I have been feeding my occupational pension scheme with additional deferred compensation for over a decade and have realized that the occupational pension scheme, in my case the chemical pension fund, is simply a lousy pipe-dream with high costs and minimal appreciation. I withdrew this year with private contributions and put the savings into the portfolio. The occupational pension scheme continues to run purely with the company share. I didn't know that there was a pension plan with real ETF savings. GENIUS. At least you have the advantage that the unpaid taxes that are due later in the payout phase can at least work ORDERLY beforehand. Thanks for this tip, I will discuss it with my employer.
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Alfred E.@Papiertiger
11Mon
If you do not opt for a one-off payment:

Is the baV also inheritable or can it be deferred to either a spouse/life partner or children?

I don't want to tell you this, but I saved 30k in the Allianz Klassik pension from my first employer and then closed it down 200 times. In my early 20s I had no plan and simply closed it 🫣☺️. There was no real internet back then... 🤓
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Noob S.@Noobster
11Mon
Great contribution. I'm also wondering whether I should pause my current contract (not a fee-based plan) or let it continue. I've already paid in for 15 years and still have 20 to go.
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Michael Wolfsteiner@Moggwolf
11Mon
Thanks for the mega contribution!
In addition, if you are interested:

1. the minimum 15% employer subsidy is not to be sneezed at. A small return turbo!

2. social insurance is not only shifted but is actually reduced (e.g. unemployment insurance contributions)

3. a possible exemption from contributions in the event of occupational disability is not possible with a normal investment in ETFs and FONDS,.... In the case of occupational pension schemes, often without health information and better occupational groups 💪🏽

4. the VL are also in very good hands here!
-VL in company pension: tax and social security exempt
-VL on building society savings/ VL deposit: compulsory social insurance

5. unbeatable: Lump sum or lifelong pension 🤩
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adrianc@eydrian
11Mon
Stark!
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TimCSH@TimCSH
11Mon
I am a My Life broker myself (albeit layer 3) and the only way I know it is that the 1% is offset against the assets in the custody account.
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Thomas@Mintaka
11Mon
To the experts: is income tax due on payment and the employer's and employee's share of health insurance?
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