With regard to the traffic light government and the Future Financing Act, one could probably aptly say: Even a blind, deaf and leg-amputated chicken finds a grain of corn.
I would like to focus on one (very positive) point of the draft law in particular: Namely on the Amendment of the Fifth Capital Formation Act
Sounds boring? It usually is. The law forms the basis for capital-forming benefits.
Previously, you could invest 40 euros per month in capital-forming benefits. Up to the income limit of 17,900 euros per year, you were also entitled to the so-called employee savings allowance.
If you invested in a securities savings plan, you could receive a further 80 euros from the state (I will leave out other investment options such as a building society savings contract, as these are not to be changed by the law).
Example calculation (income under 17,900 euros):
- 40 euros VL per month
- Investment in a fund or ETF (assumed return 7%)
- After 7 years, employee savings allowance of 80 euros per year
- Saved value: ~4,311 euros plus 560 euros employee savings allowance equals ~4,871 euros
- This would correspond to a return of ~10,4%
Example calculation (income over 17,900 euros):
- 40 euros VL per month
- Investment in a fund or ETF (assumed return 7%)
- After 7 years, employee savings allowance of 80 euros per month
- Saved value: ~4,311 euros
What changes should the law bring?
- The income limit of 17,900 euros is to be completely abolished - so everyone is entitled to the employee savings allowance
- In addition, the limit of 400 euros is to be increased to 1,200 euros per year
- This will also significantly increase the maximum employee savings allowance. From 80 euros to 240 euros per year
- Important: The regulations should only apply to investment savings, not to building society savings contracts, bank savings plans,... - The aim is to promote share ownership
Calculation example from 2024:
- 100 euros VL per month
- Investment in a fund or ETF (assumed return 7%)
- After 7 years, employee savings allowance of 240 euros per year
- Saved value: ~10,779 euros plus 1,680 euros employee savings allowance results in ~12,459 euros
- This would correspond to a return of ~11%
So if you continue to receive 40 euros from your employer, you would have to top up 60 euros out of your own pocket. After 7 years, this would correspond to a personal investment of 5,040 euros.
In relation to the "personal contribution", this would correspond to a return of over 25% p.a. per annum!
Of course, the law still has to be passed (probably in the 4th quarter of 2023) and there may well still be changes.
Nevertheless, in my opinion, this would be an extremely good start to promoting a legal equity culture.
I would also much prefer a tax-free investment portfolio for retirement provision (as in many other countries), but I think this is a better or easier way to get a large proportion of the population on board.
What do you think of the proposal? And how have you been using your capital-forming benefits so far?
My VL are invested in an MSCI World. Unfortunately without a subsidy, so I would be extremely happy if I could achieve a significantly higher return from 2024 onwards.
#etfs
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