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What is an ETF savings plan?
In principle, an ETF (Exchange Traded Fund) savings plan is an exchange-traded index fund that tracks the performance of an index (e.g. DAX, Dow Jones, MSCI World). ETFs thus combine the advantages of funds and shares in one product.
Anyone can easily set up an ETF savings plan. It is best to use an online broker and not the house bank, as the costs are much higher there. My favorites here are these comdirect and Trade Republic (Free share worth up to €200). There you can easily open a depot online, free of charge.
After opening, you then choose how high the monthly savings rate should be on the selected ETF. A very popular ETF here is the MSCI World. This brings together the world’s largest companies and therefore already has a wide spread, which reduces the investment risk.
The ETF savings plan is particularly cheap due to the passive investment. Especially if an online broker has been chosen. If you then have the savings plan paid out at some point, 25% capital gains tax + solidarity surcharge and, if applicable, church tax are due (after crediting the tax allowance of €801) on the realized gains.
Benefits of the ETF savings plan
The biggest advantage of the ETF savings plan is probably the low costs. But that was actually it. Therefore, in my opinion, the ETF savings plan is great for building up assets, but not if the goal is later to be a monthly, lifelong pension that tops up the statutory pension. More on that below.
What is ETF annuity insurance?
An ETF annuity insurance is a unit-linked pension insurance. Like an ETF savings plan, this can be taken out by anyone who lives in Germany. An ETF pension insurance works in a similar way to the ETF savings plan. However, with the special feature that there is still an “insurance cover” around the ETF savings plan. And this brings with it various advantages, which are worthwhile for employees, the self-employed, freelancers, civil servants, students, trainees and housewives/househusbands. So almost for everyone.
Benefits ETF pension insurance
ETF pension insurance in the savings phase
In the savings phase, there are almost no differences between the ETF savings plan and the ETF pension insurance. But there is one interesting thing: Capital shifts within private pension insurance from one ETF to another are not subject to withholding tax. With the ETF savings plan, however, it is.
Automatic process management possible
It is often forgotten that you have to shift your capital into safe investments a few years before you retire. If you miss this, you run the risk of destroying a large part of your pension if the stock market crashes again shortly before the start of your pension. Process management prevents this. With really good insurers, this is automatically included and regulates the later reallocation for you.
Particularly favorable tax regulations come into force when the money is paid out
Depending on whether you then have the ETF pension insurance paid out in one fell swoop or as a monthly pension, different payments will be made Taxation Principles applied.
Payment of the ETF pension insurance as a one-off capital
If you have the entire amount available from the ETF pension insurance paid out at once, there are tax advantages – provided certain requirements have been met. With a term of at least 12 years and a payout from the age of 62, only half of the profits generated (total capital minus paid contributions) are taxed at the individual tax rate.
Let’s assume that when you retire you have a tax rate of 24%, this would mean that you would only have to pay 12% tax on the total income. Or to put it another way, instead of, for example, €10,000 at 24%, you would only have to pay tax on half – i.e. €5,000 – at 24%.
That’s less than half of what you would have to pay for a pure ETF savings plan (25% withholding tax + solidarity surcharges + church tax, if applicable). In this case, the tax burden would be a lot lower than with the ETF savings plan. Due to the high level of complexity, the different partial exemptions were not taken into account in this comparison. This is 30% for equity funds and 15% for fund policies.
Payment of the ETF pension insurance as a pension
If you want to pay out your capital as a monthly pension, the taxation looks a little different. This again results in high tax advantages. The pension payments from the ETF pension insurance are only taxable with the so-called income share. If we take the current, regular retirement age of 67 as an example, only 17% of the income would be taxable. It is often assumed that 17% tax is then incurred on the income. That’s not the case. The tax then applies to 17% of the income. And this 17% is then taxed at the personal tax rate. This is of course a lot less than the capital gains tax that would be the case with a fund withdrawal plan in the ETF savings plan.
Important criteria for ETF pension insurance
A good ETF pension insurance should meet the following criteria:
- high 100% guaranteed annuity factor without trustee clause
- Improvement of the pension factor (if the actual pension factor is higher than the guaranteed pension factor at the start of the pension)
- low costs
- free switching and shifting of funds/ETFs
- high flexibility (deposits, withdrawals, etc.)
- arrange automatic process management
- Degree from an established, financially strong insurer and not from a “start-up”
ETF savings plan or ETF pension insurance – who will win the race?
A unit-linked pension insurance (in our case a pension insurance with ETFs) definitely has a higher cost share than a pure ETF savings plan due to the insurance cover. But also a lot more services and safeguards. Above all, the more favorable tax treatment, which in some cases (when choosing the right insurer) can offset the low costs of the ETF savings plan.
And if that is the case, then the pension insurance will beat the savings plan!
Because there is one point that is always easily forgotten when you rely on a pure ETF savings plan for your old-age provision. Put yourself in the situation that you are now 67 years old. You have built up a lot of capital with your ETF savings plan. Let’s say €250,000. Now you’re retiring and you want to take the capital to top up your monthly state pension and you’re trying to set up a withdrawal plan.
Here at the latest you are faced with the following problem
How much monthly amount do I allow to be paid out? Maybe €1,000 (withholding tax not even deducted yet!)? Calculate quickly. I would then be able to have the €1000 paid out to me in about 20 years. Then the capital is used up. But it would be stupid if you are still alive but your coal is gone. That means you HAVE to make a projection here and basically gamble how long you will live. If you ask me, these are not optimal conditions for a carefree retirement. But it is precisely this point that is ignored or forgotten by so many.
The solution is very simple
A pension insurance ALWAYS pays you a lifelong pension. Regardless of whether, in theory, your saved capital has already been used up or not. The pension insurance still pays if you should be 150 years old. And if you’re reading this right now and you’re in your 20’s or 30’s, chances are you’ll live past 100 someday. If you have now found that ETF pension insurance is actually pretty clever for old-age provision, then you are welcome to book an appointment for free online advice from our experts. We know the market and have selected the best providers for our customers.