From the Handelsblatt archive: More can be paid into the retirement savings account than is necessary for the funding. In retirement, the tax rates are low - but sometimes they are expensive.
High earners: You should be able to put large sums into your retirement savings account every year. Photo: dpa
Munich. The retirement savings account has been decided - the Riester pension ends on December 31st of the current year. With the successor, not only employees, but also the self-employed and civil servants will be able to benefit from state funding from January 2027.
The new options are likely to trigger a sales wave among providers. This is what Niels Nauhauser, finance team leader at the Baden-Württemberg consumer center, expects. He assumes: “High earners in particular will receive offers.”
In addition to the support, the retirement savings account can also offer tax advantages. This is especially true for those who deposit significantly more than is necessary for maximum funding. Nauhauser is convinced that many banks and financial service providers will use the tax advantage as a lure to start talking to their customers about retirement savings accounts in the coming months. For many interested parties, it is important to familiarize themselves with the different models. What is already known about them today and who are they worthwhile for?
The key points of the retirement savings account have already been determined: Anyone who pays into a retirement savings account will receive an additional 50 cents from the state for every euro saved up to an annual personal contribution of 360 euros. Savings amounts of 361 to 1,800 euros are subsidized with 25 cents per euro deposited. This brings together a total of 540 euros. This means: Anyone who saves 1,800 euros per year will invest 2,340 euros thanks to the funding.
Retirement provision portfolio: A small tax extra is included in support
There is also a tax advantage that increases the higher the personal marginal tax rate is. If it is 42 percent (applies to an annual income of 70,000 euros), you get 443 euros back. The calculation is: 42 percent of 2340 euros (calculated above) is 983 euros minus. The funding amount of 540 euros is deducted from this, resulting in 443 euros.
With a marginal tax rate of 50 percent, the annual refund increases to 630 euros. According to expert Michael Huber from the VZ Vermögenszentrum, this is possible for anyone with a five-figure monthly income.
Huber explains that the amount that investors save on taxes can now be reinvested. An example: With an annual tax saving of 443 euros and an assumed return of 6.5 percent after costs over 30 years, a savings plan on a stock ETF amounts to around 40,500 euros.
Assuming the saver receives the highest possible funding, after 30 years they will have total assets of around 250,000 euros (see graphic).
Save over 14,000 euros with two depots
Another point is relevant: According to the law that has now been passed, savers should be able to pay more into their retirement savings account than is necessary for maximum support. In total, this should be possible in up to two contracts, each of which can receive a maximum of 6,840 euros. Deducting the 1,800 euros that are paid in to receive the funding, 11,880 euros can be paid in unfunded per year across both contracts.
However, it is still unclear whether this “oversaving”, as Niels Nauhauser calls it, is worth it. “We don’t yet know which products will come onto the market and what costs and possible returns can be expected,” explains the consumer advocate. However, some advantages and disadvantages are already foreseeable today.
No taxes should be incurred when reallocations are made in the retirement savings account. This applies to both the subsidized and the non-state-supported sums. The so-called advance flat rate that savers have to pay for reinvesting ETF savings plans is also not applicable.
According to Nauhauser, active investors who repeatedly sell shares of their funds or ETFs have an advantage. “Whether such a strategy is ultimately superior to a ‘buy and hold’ strategy is another matter,” admits the consumer advocate.
But the fact is: the generous deposits of over 14,000 euros alone, through your own contributions, funding and tax refunds, can add up to over 1.3 million euros in 30 years with a return of 6.5 percent after costs. (see graphic)
Different tax rates in retirement
Taxes on the income from retirement savings accounts are only due in retirement, when the money saved is paid out. The funded portion is subject to the full personal income tax rate. How high the tax rate affects the remaining sum depends on how the capital is used.
There should be three ways:
1. The payout. Here it is important to differentiate between the part of the retirement savings account that is funded and the part that is additionally saved. Of the money collected through the funded part, i.e. the 1,800 euros per year as personal contribution plus the funding, only a maximum of 30 percent may be paid out. The rest of the capital must be paid out into a payout plan or as an annuity for life. The entire capital of the partial payout is taxed at the personal tax rate.
It is generally assumed that people in retirement have a lower tax rate than in working life. However, according to Huber, this is not necessarily the case: “It may well be that high earners pay a very high tax rate of 40 percent or more even in retirement.” This could be the case, for example, if rental income is also received in addition to income from pensions and other pension contracts.
If the saver has the capital from the additional savings paid out in one fell swoop, the half-income method should be used. Only half of the income is taxed at the personal tax rate. However, if the money was invested for less than twelve years, the withholding tax applies to the entire income.
In such a case, Nauhauser believes that calculations should be carried out very precisely. Anyone who makes provisions without a retirement savings account and, for example, saves for a stock ETF for 30 years without switching, pays a good 26 percent (capital gains tax, solidarity contributions and possibly church tax), but benefits from a partial exemption of 30 percent. “The bottom line is that the actual tax burden falls to around 19 percent,” says the expert.
2. The payout plan: Here, the saved capital should be invested by a financial service provider in such a way that it is paid out within a certain period of time. The money that is not needed for the next payouts can still be invested in stocks, among other things. From a tax perspective, a distinction is made between the subsidized and the unsubsidized part. The funded portion is subject to personal tax rates.
If the funded capital flows into a payment plan, the regular payments are subject to the personal tax rate. For the unsubsidized part, it depends on when the payment plan begins. If the plan starts at age 65, 18 percent of the payout rate is subject to the personal tax rate. If the plan starts at age 67, the taxable portion is reduced to 17 percent.
3. The lifelong pension: Here the money flows until your last breath, and is guaranteed. According to Nauhauser, that sounds attractive. But there is the disadvantage that a pension insurance can only invest a small amount in the stock market. She must act carefully to guarantee a lifelong pension. “The returns are significantly lower than with a payout plan and the costs are significantly higher,” explains the consumer advocate. For tax purposes, a distinction is also made between the subsidized and the unsubsidized part of the payments. The rules correspond to those of the payout plan.
Without a retirement savings account: Anyone who does not use the retirement savings account pays an upfront flat rate during the savings period in a savings plan with reinvestment. With each shift, withholding tax plus contributions and possibly church tax are due. During the payout phase, withholding tax etc. must also be paid for every sale from the depot.
The first-in-first-out rule (known as FIFO for short) applies. This means: The oldest savings plan tranches, which have probably achieved the highest profits over time, are sold first. To get around this, savers can divide their savings into several deposit accounts years before retirement. This allows them to sell younger ones first, who have lower profits.
Retirement provision portfolio: Don’t rush it
There are still many questions unanswered. According to the two experts Nauhauser and Huber, it is not yet possible to conclusively judge what is more worthwhile: saving with the help of the retirement savings account? Or just use the retirement savings account to receive the maximum funding and also invest money for old age in a conventional ETF savings plan? All offers that are now advertised or offered directly should therefore be checked carefully.
For Huber, one thing is certain: If you want to remain flexible during the savings phase and especially in retirement, you should only use your retirement savings account for funding and save the rest on your own. Anyone who otherwise has the money paid out before the age of 65 must pay back all the allowances and any tax savings they may have received.
“Without a retirement savings account, you can use your money as you wish in retirement and are not forced to choose between the three withdrawal options,” says the retirement planner. Nauhauser therefore advises: “Returns and flexibility are more important than saving the last cent in taxes.”
