Criticism from financial experts: Company pension schemes are convenient – ​​but treacherous

The company pension scheme (bAV) is quite convenient because the employer takes care of it.

Criticism from financial experts: Company pension schemes are convenient – ​​but treacherous

The company pension scheme (bAV) is quite convenient because the employer takes care of it. He chooses the contract, manages everything and also adds money. Although it sounds good, there are some pitfalls for employees. If you're not careful, you'll get a bad deal with your company pension. "The company pension scheme doesn't actually deserve this name if the employees pay for it themselves," criticizes Theodor Pischke, an expert on retirement provision at Stiftung Warentest.

For a few years now, employers have been required to contribute at least 15 percent of contributions. The employees pay the rest themselves via the so-called deferred compensation. This means that they pay contributions to the company pension scheme from their gross wages. "The question is whether this is really profitable. Especially if the company only contributes the minimum share, it may not be enough if the contracts are bad," says Pischke. The following applies here: the more the employer pays in, the more it is worth it. It's best if he takes full responsibility for the contributions. And it depends on the costs and returns of the contract offered. However, the employees have no influence on their selection.

The state's funding policy also contributes to the poor balance sheet. There are no taxes or social security contributions on the contributions to the company pension plan, as long as the contributions do not exceed certain limits. This means that a significantly higher amount flows into the contract than is ultimately missing from the net wage. Insurance representatives also like to tell employees this in order to promote the offer. But in the end, the tax authorities recoup the support during the savings phase: taxes and social security contributions are due for the pension payments, even if these are usually lower in retirement due to the lower income. There is also an allowance for health insurance, so that pensioners with small company pensions do not have to pay contributions.

And in addition, the funding elsewhere has a negative impact on the office. If the contributions that flow into the social insurance coffers decrease, the entitlement to the corresponding benefits also decreases. This applies, for example, to unemployment insurance, sickness or parental benefits, but also the statutory pension. “This deduction must first be recouped by the company pension scheme. The employees must be aware of this,” says Pischke. However, no one calculates the impact of taxes, social contributions and so on on an individual basis for employees when concluding the deal. Assessing the consequences is difficult.

It can also become problematic if someone changes company after a few years. Whether the current company pension contract can simply be continued with the new employer is a matter of luck. On the one hand, this is due to the so-called implementation method that the company has chosen. Anyone who saves for old age through a direct commitment or in a support fund cannot transfer their retirement provision. It is tied to the employer.

The situation is different with direct insurance, pension funds or pension funds. There is a transfer agreement that most insurance companies have signed, explains Pischke. "But the new company has the final say. This is only possible if it is prepared to take over the contract or the capital from it. Otherwise, the current contract must be closed down and a new one concluded." Anyone who changes jobs several times and cannot take their entitlements with them will end up having several company pensions, all of which only bring in little money.

There can also be flaws hidden in the small print, sometimes simply caused by mistakes. Michael Diedrich, managing director of the pension consulting company bbvs, reviewed five-year contracts for the German Institute for Retirement Provision. He found errors in most of them. "This is a problem especially for employers. Whether documents are missing, information is incorrect or agreements are incorrect: they are generally liable for the damage caused."

However, there are clauses that employees should pay attention to. For example, you should check what your contract stipulates when you retire. Is there a fixed date from which the pension is paid out or is there a flexible collection period? This becomes important, for example, if employees want to take early retirement. "Especially with older contracts, it is often not possible for the company pension to be paid out a few years earlier. However, in the event of early termination, insured persons may only receive the surrender value instead of a pension payment - which is significantly lower," reports Diedrich. However, if the company pension is due too early, it will be paid in addition to your employment income - which increases taxes and duties.

With the bAV, relatives such as spouses, registered life partners and young children can be financially protected in the event of death. If the insured dies, they can receive certain payments. However, life partners only receive this benefit if their name is included in the contract. The same applies if parents or siblings are entitled to receive benefits. “Many employees, especially those who are unmarried, have not made any arrangements for this. Then their relatives have to go through the hassle of proving with an inheritance certificate that they are entitled to the money,” warns Diedrich. If you haven't entered anyone, you should do so and name your partner, parents or children. It is important to update the data regularly, for example after a separation. Otherwise, in case of doubt, the ex-partner will receive the money instead of the new partner.

This article first appeared in the business magazine "Capital", which, like stern, is part of RTL Deutschland.