The ins and outs of pensions

Plan on growing old and grey in Germany? Joe Morgan explains why you shouldn’t rely solely on a state pension for your golden years.

The ins and outs of pensions
Photo: DPA

Discussing how you will support yourself financially in the grey years of retirement may not be the most enthralling topic of conversation at a dinner party, but private pensions saving is becoming increasingly important.

German residents are having to take a much more proactive approach to pensions savings, as the role of the state in funding retirement plans recedes.

This is in part a response to the ageing demographics of the country. Germany has one of the lowest birth rates in Europe, with the proportion of its population aged over 65 set to almost double to 30 percent by 2035. As a consequence, the retirement age in Germany is being raised from 63 to 67, in a phased process from 2012 to 2029.

A recent important trend in the pensions landscape in Germany is a migration from defined benefits schemes, where a pension is determined by a set formula rather than investment returns, to defined contribution schemes, where responsibility for ensuring an adequate retirement shifts to individuals having their income directly linked to investment returns.

“The trend towards defined contributions is very strong,” said Nikolaus Schmidt-Narischkin, managing director, head of fiduciary distribution pension solutions at DB Advisors, the institutional asset management arm of Deutsche Bank in Frankfurt.

“The government is providing incentives to these schemes in the form of early retirement options and so-called ‘flex-time’ models offering the employee the option to save parts of his or her bonus or part of his or her base salary, left over vacation days, stuff like that. Invest that and use it for early retirement.”

Employees in Germany have the option of saving for a pension in an occupational scheme, which is organised by a company and financed by its employees. The maximum annual contribution members of such schemes can make is €2,640 (set to be increased to €2,688 in 2012).

Alternatively, pension savers can pay contributions into a private scheme, which falls under the so-called Riester- Rente legislation, and requires employees to make pension contributions from their net income. Additional state top-ups are available to members of such schemes, depending upon factors such as the number of children they have.

The newer Rürup-Rente scheme is another option available to everyone, though for tax reasons it is primarily taken out by the self-employed. Members of a Rürup-Rente scheme can pay into the plan a maximum of €20,000 per year if they are single or €40,000 per year if they are married. In 2011, members could write off 72 percent of their annual contribution against their income. This percentage amount then increases by two percentage points each year until reaching 100 percent.

Leading pension providers funding private Riester-Rente plans include Allianz, the global insurance company, DWS, Deutsche Bank’s retail asset management arm, R+V Versicherung and Union Investment Asset Management.

“The most efficient way to save for a pension is with an occupational corporate scheme. This is because some unions will have negotiated in a collective bargaining arrangement which provides members with an extra top-up,” said Martin Katheder, director, head of pensions markets at Allianz Global Investors in Munich.

He gave the example of an occupational scheme member paying €100 into their pension pot each month. “In the metals and electronics industry, he or she will have the right to apply for an additional annual employer contribution of €320, which will equate to an annual pension contribution of €1,520. In addition, scheme members can obtain an approximately €600 tax and social security tax break for the €1,200 paid into the scheme each year,” he said.

“My advice to people is that they should check if they have used up all the tax incentives for saving for a pension which are available to them from the state,” said Katheder.

Meanwhile, the current low interest rate environment in the eurozone has resulted in the Finance Ministry in Germany in February 2011 decreasing the life insurance guaranteed interest rate (GIR) – the maximum interest rate insurers are allowed to promise as legally binding while selling their policies – from 2.25 percent to 1.75 percent.

Dr. Sabine Horstmann, a project manager at the GVG group in Cologne, which represents stakeholders including bodies from the insurance sector and health service on social policy issues, said this reduction in the interest rate has become a contentious issue in Germany. “A lower GIR makes life insurance and pension policies less attractive for consumers. The New GIR will be effective from January 2012 onwards.

Going by the bulky moniker the Familienpflegezeitgesetz, new legislation coming into force January 2012 will provide the voluntary option of providing employees with the choice of reducing their working hours to organise the long-term care of an elderly family members. “The legislation will allow employees to have a reduced working week of 15 hours, while still obtaining half of their salary. This will be compensated by a lower salary when they return to full-time work,” said Horstmann.

But the German pension industry is still in the process of creating offerings that meet the requirements of the Familienpflegezeitgesetz rules, as well as the growth of defined contribution schemes which have compulsory long-term care insurance components.

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Monkeypox in Germany: Two teens ‘among new infections’

Two teenage boys between the ages of 15-17 have reportedly been infected by monkeypox, as the number of cases in Germany continues to grow.

Monkeypox in Germany: Two teens 'among new infections'

German news site Spiegel Online first reported the new cases – which are an anomaly for a virus as it has mostly affected gay men – following an inquiry to the Robert Koch Institute (RKI). 

They are among a total of 2,677 people who are confirmed to have contracted the virus in Germany to date. There have not been any fatalities.

Out of these, only five cases were women, according to the RKI. The public health institute said that it does not release information on individual cases.

READ ALSO: EXPLAINED: How Germany wants to contain the monkeypox

The disease – which is not usually fatal – often manifests itself through fever, muscle aches, swollen lymph nodes, chills, exhaustion and a chickenpox-like rash on the hands and face.

The virus can be transmitted through contact with skin lesions and droplets of a contaminated person, as well as through shared items such as bedding and towels.

Many of the cases known so far concern homosexual and bisexual men. However, affected people and experts have repeatedly warned against stigmatising gay communities.

How fatal is the disease?

The first monkeypox cases were reported in Germany on May 20th, as the disease continued to spread in West Europe.

At the weekend, the first two deaths outside of West Africa were reported in Spain.

READ ALSO: WHO warns ‘high’ risk of monkeypox in Europe as it declares health emergency

The RKI has urged people returning from West Africa and in particular gay men, to see their doctors quickly if they notice any chances on their skin.

According to the latest estimates, there are 23,000 monkeypox cases worldwide, and Europe is particularly affected with 14,000 cases.

There have been 2,677 monkeypox cases in Germany as of August 2, 2022. Photo: CDC handout

About eight percent of patients in Europe have been hospitalised so far, reported the World Health Association on Monday, mostly due to severe pain or additional infections.

In general, the mortality of the variant currently circulating in Europe is estimated to be low.

READ ALSO: More cases of monkeypox ‘expected’ in Germany

Will a vaccine make a difference?

Since July, a vaccine has been authorised in 27 EU member states and in Iceland, Liechtenstein and Norway. 

The Standing Committee on Vaccination (STIKO) recommends vaccination against monkeypox in Germany for certain risk groups and people who have had close contact with infected people.

So far, the German government has ordered 240,000 vaccine doses, of which 40,000 had been delivered by Friday. 

Around 200,000 doses are set to follow by the end of September. 

The German Aids Federation (DAH) on Friday called for one million vaccine doses, stressing that the current supplies will fall short of meeting need.

“The goal must be to reduce the number of infections as quickly as possible and to get the epidemic permanently under control,” explained Ulf Kristal of the DAH board in Berlin on Friday.

But this is only possible, he said, if as many people at risk of infection as possible are vaccinated.

“We don’t assume the epidemic will be over when the doses available so far have been vaccinated,” Axel Jeremias Schmidt, Epidemiologist and DAH Consultant for Medicine and Health Policy, wrote in a press release.

As long as there are monkeypox infections, he said, people who are at risk must be offered vaccination.