Annuities are still a good idea
Does the coronavirus have an impact on retirement?
the essentials in brief
The corona pandemic has been paralyzing companies for months. The question is not whether an economic crisis will follow, but how severe it will be and how long it will last. Millions of people in Germany fear: is my pension safe? How does Corona affect retirement provision? CLARK informs.
Today's retirees are hardly affected by the looming economic crisis.
The younger generation should be more concerned about their pensions. Corona plays a subordinate role here.
Nobody can avoid private provision.
Over 300,000 satisfied customers are already managing their insurance with CLARK. Find out what the community thinks about CLARK.
Statutory pension in Corona times
In the middle of the Corona crisis, in summer 2020, pensions rose in Germany, in the west by 3.45 percent, in the east by 4.2 percent. At first sight, the state simply adhered to the rules, because the pension is always based on the wage development of the previous year. From a psychological point of view, however, it was also linked to an important signal: What is promised will be kept.
The sharp rise is now followed by a zero round: in 2021, pensions in the West will remain at the level of 2020 and pensions in the East will rise marginally. From this, as some tabloid media have done, a “pension hammer” can be constructed. Or one looks at the positive: the current generation of pensioners hardly has to fear any losses despite the crisis.
Why the pension is currently safe
The situation of retirees and those working closely with them will not deteriorate in the coming years either. Firstly, a protective clause guarantees the pension level once it has been reached: pensions in Germany are allowed to stagnate. But they are not allowed to sink. Second, the economy, which was sustained well before Corona, has filled the pension fund. A massive deficit of the German pension insurance is not to be feared for the time being.
No short-term effects on the statutory pension
In addition, the catch-up factor of the statutory pension insurance is suspended up to and including 2025. It normally serves to socially balance the interests of current and future retirees. How it works: if pensions rise, although wages stagnated in the previous year, pension increases remain restricted in the following years, even if wages rise sharply.
The fact that politicians have temporarily abandoned the catching-up factor has an effect in favor of today's retirees and those close to retirement. The current crisis is having less of a financial impact on them than on many workers. They also benefit when the economy picks up again later and wages rise.
Retirement provision still in retirement? This works out!
Nevertheless, it is advisable for many people who have a very modest income in old age to take additional private provision. If you haven't done that yet and can spare a bit of your savings, the immediate pension may be suitable. With this pension product, a large amount of money is paid in, retired and paid out again in the form of a lifelong pension. This is a comparatively safe investment, especially in times of crisis when the stock market is going crazy.
Why the statutory pension will not be enough in the future
Young people, on the other hand, shouldn't fool themselves: unlike their parents and grandparents, they can no longer rely on the statutory pension. And that basically has little to do with Corona at first. Rather, the reasons are that life expectancy is increasing, many Germans still retire at 63 and the population as a whole is aging. All of this leads to additional costs that can no longer be offset by contributions: The expenditure of the statutory pension insurance rose by almost 100 billion euros between 1992 and 2012.
In view of this situation, the state has had no choice but to pump tax money into retirement in recent years. And just because the economy was booming, the topic stayed more or less under the radar. It was only the Corona crisis and the expected economic crisis that washed it up again. Almost all experts repeat like a mantra that young people have to make private provision. Even the Federal Ministry of Labor and Social Affairs now openly admits that the pension level in Germany will fall.
Low-wage earners in particular have to fear poverty in old age. That is why the legislature introduced the basic pension in 2021 after a long squabble. In one sentence: If you are dependent on social assistance despite working for decades in retirement, you may receive a supplement to your pension.
Only with private provision will you be able to maintain your usual standard of living in old age. If you need help comparing tariffs, please contact CLARK.
- For today's retirees, the financial consequences of the current crisis are limited.
- Younger people should not rely exclusively on the state pension insurance: Even before the Corona, it was clear that private provision was necessary.
- It's never too late for retirement planning.
Short-time work, for example, influences pension contributions
An entrepreneur who can no longer fully employ his employees may order short-time work. Only the time that an employee still spends in the company is paid. The employment office pays for the difference. However, this does not pay for the full loss of earnings, but rather 60 percent of the lost net wage. If at least one child lives in the household, the figure is 67 percent.
Less contributions, less pension
In Germany, employers and employees share the contributions to the statutory pension insurance. This also applies during short-time work. If you are affected by this measure, there is bad news and some reasonably good news.
Let's start with the bad one: With your wages, the pension contributions also decrease in real terms. The employment office does not compensate for this gap. This distinguishes short-time working from people who lose their job and receive unemployment benefit I. This is where the employment office steps in. It pays the pension insurance contributions to 80 percent of the last gross salary.
Now for the reassuring message: on the wages that your employer saves, they must continue to contribute to the statutory pension. They are not 100 percent, but still 80. So your losses are not as high as you may have feared.
You earn 3,500 euros gross and are 70 percent on short-time work. So effectively you work 30 percent in the company. You will receive 30 percent of your wages from your employer, which corresponds to 1,050 euros. From this amount, your employer pays half of the social security contributions. You take over the other half.
The difference in wages is € 2,450 (3,500 minus 1,050). Your employer has to pay the contributions for 80 percent of this sum, i.e. for 1,960 euros (2,450 x 0.8).
If pension contributions of 3,500 euros were paid for you in full employment, you will still receive pension contributions of 3,010 euros according to this example. That corresponds to 86 percent. As a short-time worker, you lose 14 percent of your pension contribution every month.
Close the gap that arises
For workers with savings, it can be worthwhile to close this gap privately with additional old-age provision. Interest on the money that is on the high edge has not existed for years anyway. If your economic situation allows, find out more about pension products right now. In a few years, you will likely find the decision a blessing. The corona mess as an impetus to take care of the pension that is due anyway - look at it this way.
Keep calm with your insurance
In the Corona crisis, however, some people cannot fall back on their savings to make ends meet in everyday life. On the contrary, you may even be looking for ways to reduce your fixed costs within a short period of time. As insurance experts, it is not our place to give you supposedly good advice on saving. We therefore limit ourselves to a warning: terminating insurance is rarely a good idea. You can read more about this in our guide.
- In short-time work, the contributions to the pension insurance decrease.
- The gap is not as serious as many workers fear.
- Nevertheless, it should be closed: The pandemic is a wake-up call for precaution.
What Corona means for private pension provision
The pandemic has caused unrest on the stock exchanges, and that has left its mark on the private pension insurance of Germans. How your investment survives the turbulence depends heavily on the type of investment and the remaining term.
Surplus in uncertain times
If you have put your old-age provision in an insurance product at a fixed interest rate, then practically nothing can happen to you: the insurer is bound by its promise. The situation is somewhat different with the surpluses. These are the profits that your insurance generates with your payments on the capital market and in which you participate. Nobody can give you a guarantee. On the contrary: these surpluses could turn out to be significantly lower than hoped because of the looming economic crisis.
Guarantees and opportunities
Since there is hardly any interest, many providers let their customers decide how profit-oriented the retirement plan should be. The following applies: the higher the chances of a return, the greater the proportion of contributions that are invested directly in the capital market. Investments are made in funds or stocks, for example. This reduces the guarantees that the insurer takes on. In return for higher chances, you take on higher risks. If the worst recession in decades actually occurs, it could mean that you get less money in retirement than you deposited.
Running time plays into your cards
This is where the term factor comes into play: If the payment of your pension is still a long way off, don't let Covid-19 unsettle you. Think back to the 2008 financial crisis. Even those who invested in stocks just before the collapse of large banks, ultimately ensured growth with patience and a sufficiently broad diversification. For example, the German share index (DAX) rose by an average of more than a tenth per year between 2008 and 2018.
Even if you are about to retire and your pension plan is about to be paid off, this is no cause for concern. Compared to the year 2000, for example, the DAX has gained a good two thirds in value despite the financial crisis and the crash at the beginning of the pandemic. A long term usually protects investors from heavy losses.
Riester contracts and company pension schemes
You have to fear less serious effects of the Corona crisis if you save on a Riester pension or make voluntary contributions to company pension schemes. With the Riester pension, you can organize your retirement provision in an opportunity-oriented manner, without running the risk of having less than what you have paid in in old age. Company pension schemes are also one way you can make provisions without taking the risk of loss. These are secure pensions because you will at least get your contributions back, no matter what.
But other products such as private pension insurance or the Rürup pension, which do not necessarily include a contribution guarantee, can also be worthwhile. Mainly because of the greater potential for returns.
Retirement provision with stocks - staying power pays off
The pandemic has reduced the cost of entry into stock-based retirement provision. ETF or fund savings plans, into which a fixed contribution is regularly paid, are often possible for as little as 25 or 50 euros. Especially in times of crisis and despite low income, it can be worth investing in.
Watch the stock exchanges and observe the basic rules of investing: Spread your investments as widely as possible, ignore the supposedly hot share tips from speculators and don't let yourself get nervous. A long investment period usually pays off, even if prices slide into the red in the meantime.
- Consumers shouldn't get nervous when the prices of their long-term investments fall during the crisis.
- Tip: keep existing contracts and keep saving, conclude new contracts, maybe even make a one-off payment.
- If you buy fund shares cheaply, you can emerge as a winner from the corona crisis if prices rise later.
With Corona as an impetus - make provisions for old age now
Anyone who wants to be well prepared for the future despite the corona and financial crisis should invest in a good combination of pension products at an early stage. Basically, the amount of contributions and future pension income depend on how many years wealth has been built up. At least one tenth of your net income should be put into your pension provision every month. The best way to do this is different for every employee. The CLARK experts will help you find the tariff that best suits you and the current risks. This is how you do it:
Contact our CLARK experts. You can do this easily via chat in the CLARK app or by leaving us your contact details below.
The CLARK experts advise you without obligation. Upon request, you will receive an offer that is individually tailored to your life situation.
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