Investors can choose to save for their future through investment funds or (unit-linked) life insurance. The main difference is that the fund option focuses on capital growth, whereas the insurance solution also provides coverage for certain risks (e.g., death benefit). Since insurance coverage as part of retirement planning – like any insurance – incurs costs, the total return is lower than with options that do not include insurance coverage.
The annual cap on contribution payments is a specific percentage of the maximum assessment base for social security. For the year 2013, this results in a maximum subsidized contribution amount of 2,445.55 euros, with the maximum premium amount set at 103.94 euros.
At the end of the investment period, the investor has three options: The accumulated amount can be converted into an income tax-free annuity (i.e., paid out as additional monthly income) (starting no earlier than age 40), reinvested tax-free, or paid out as a lump sum; in the case of a lump-sum payment, however, the earnings are subject to retroactive taxation (capital gains tax) and half of the premiums must be repaid.
