From today's perspective, experts believe that state pensions are reaching their financial limits due to demographic trends, unless government subsidies and/or contribution rates are significantly increased. Therefore, in addition to this state pillar of retirement planning, efforts are being made to expand the occupational pension system (pension funds, reform of severance pay) as well as to encourage individuals to make their own retirement provisions. As an incentive to increase private retirement savings, the tax-advantaged "Zukunftsvorsorge" plan was created and has been available since early 2003.
The "Zukunftsvorsorge" has several distinctive features:
- Government bonus
Modeled after the building savings plans popular in Austria, an annual government bonus is granted that amounts to between 4.25% and 6.75% of the contribution amount, depending on market interest rates. For 2016, the maximum contribution eligible for the bonus is 2,676.89 euros, and the maximum government bonus is 4.25% (= 113.77 euros). - Fund-based structure
The retirement plan must be structured as a unit-linked life insurance policy or an investment fund. - Capital guarantee
Providers of retirement savings products must offer their customers a capital and premium guarantee—regardless of how the market performs. - Investment term
The investment term is at least ten years; many providers require a longer minimum commitment period. Early termination is not possible. - Tax exemption
No capital gains, income, inheritance, or insurance taxes are levied. Pension payments are also exempt from income tax.
