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Half-income procedure for private pension insurance

Insurance tip on the topic of private pension insurance

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Taking advantage of tax benefits: The role of the half-income
procedures for private pension insurance

With a private pension plan using ETFs, investors can build up retirement savings. For example, you pay in... A fixed amount is paid monthly into the pension insurance scheme. This is to create financial security for retirement. After entering retirement, pensioners have the option of choosing a lump sum payment. This means you can decide whether you want to receive the accumulated sum as a one-time payment or as a lifelong pension.

From the year 2005 onwards, the following regulations generally apply to all pension contracts concluded: Taxes are due during the payout phase.. The taxable amount is the return from the private pension insurance. Put simply, this return is the amount remaining after subtracting the total amount paid in from the total amount received. The specific method of taxation depends on the chosen payout method.

When the credit balance from the contract is paid out as a monthly annuity, the so-called... Income tax due (click here).

In the case of a partial or complete one-time payout of the balance, the following applies: Half-income procedure Application. Learn more about this immense tax advantage in the following article.

Optimal taxation for a lump-sum payment: The half-income procedure

At a one-time capital payout can the Taxation according to the half-income procedure This results in 50 percent of the income being tax-free. This method can be applied both at the time stipulated in the contract and upon termination of the contract.

In order for the half-income procedure to be applied to a capital payout from your private pension insurance, meaning that only half of the proceeds are taxed, the following conditions must be met:

The insurance contract must contain Minimum term of 12 years exhibit
The capital payout must after the age of 62 This will take place. For contracts concluded before 2012, an age limit of 60 years applies.

Once the conditions of this so-called „12/62 rule“ are met, the profit from the pension insurance is taxed according to the individual income tax rate under the half-income procedure.

Taxation of securities accounts

Let's consider the following example: You invest €250 monthly in an ETF portfolio for a term of 42 years. There is a partial tax exemption of 30% for equity funds and 15% for mixed funds. The taxation upon payout is then as follows:

Taxation of ETF pension insurance

Now we'll apply the same example to a pension insurance policy for our ETFs. The partial tax exemption here is generally 15%, on which the half-income procedure is then calculated:

Therefore, even in this scenario with a comparatively high income tax rate of 30% in old age, the tax advantage is very high.

Note: For the sake of simplicity, the advance lump sum payment was not included in the calculations. Learn more about this topic. here.

For whom is the half-income procedure worthwhile?

The half-income procedure proves particularly attractive for those who, in retirement, a certain degree of tax planning certainty aim for.

Especially with long-term pension insurance policies designed to generate substantial returns over decades, such "tax optimization" can certainly be advantageous. However, it should be clear that reducing the tax burden is only relevant if returns are actually generated.

Thanks to our digital processes, we serve clients throughout Germany and are often asked to review their pension insurance policies. We frequently notice that many pension insurance policies have disproportionately high costs.

In most cases, high costs are difficult to justify and primarily affect the payout of the pension insurance.

If you have any questions about private pension insurance, please feel free to contact us! Our experts will help you choose the right retirement plan for you.

The net policy

By taking out a net policy as part of your pension insurance, you could receive a [benefit] at the end of the contract term. additional capital payout of several tens of thousands of euros record.

This is because with a net policy, also known as a net tariff, no acquisition and distribution costs are incurred in the first 5 years of the insurance.

Instead, a fee is charged, which is paid directly to the consultant.

The Combination of a net policy with the half-income procedure leads to a multitude of Advantages, which result in higher throughput. The basic principle is:

The lower the costs, the higher the return and therefore the total capital at the start of retirement.

If you're interested in this topic, please feel free to contact us. We'll explain the advantages and disadvantages and decide together whether an ETF-based pension insurance policy in the form of a net policy is right for you.