A supplementary pension is a form of saving to supplement statutory pensions. This means that the saver can guarantee a higher monthly retirement income thanks to an additional investment during their time working. This form of saving arises from current social and demographic needs, such as the increase in the average age of the population and the number of years spent in retirement. The people in UK are getting older. Statistically, a 60-year-old woman will live for another 25 years and a man will live for an average of 22 years. In addition, it’s possible for living- and economic conditions to change (e.g. inflation) and for the real value of our pensions in relation to standard of living to decrease. Because of these needs, a widespread alternative pension scheme has developed in UK. The state encourages the establishment of such a supplementary pension and grants allowances. The UK system of old-age insurance is based on three pillars – statutory pension insurance, company pension and private retirement provision.
The company pension scheme is a voluntary service provided by the employer. Employees can invest part of their wages or salaries in a company pension scheme in order to receive a company pension later. More than half of all employees subject to social security contributions – as confirmed by the Federal Ministry of Labor and Social Affairs (BMAS) – are building a company pension with their current employer. This type of supplementary pension is very successful.
There are different types of company pension schemes. In each of these cases, savers are protected from possible insolvency by the Pension Insurance Association - (PSVaG), a mutual insurance association that takes care of all those entitled to company pensions. In most cases, there are collective agreements on company pension schemes. Payments can be made by the employer or the employee, but also by both. These forms of savings also benefit from tax advantages. Through this direct commitment, the employer must grant their employees or their relatives pension benefits. Although this company pension scheme is not subject to any state supervision, it’s nonetheless protected because, in the event of the employer's insolvency, the PSV pays the performance promised by the employer. The relief fund is financed by the employer, although it’s a legally independent pension institution. The pension fund works in a similar way to a life insurance policy and is subject to insurance supervision, and thus, the investment restrictions that apply to insurance companies. The pension fund works in a similar way to a life insurance fund, but the funds brought in can be freely invested in the capital market. which applies to insurance. The pension fund works in a similar way to a life insurance fund, but the funds brought in can be freely invested in the capital market.
In UK, there is the tax-subsidised, privately financed, additional pension scheme: the ‘Riester pension’. The subsidy consists of government allowances and tax savings. The allowances are offset against the payment amounts and thus reduce the amount that you actually have to pay in. State allowances depend on certain factors, such as the number of dependent children (child allowance). In addition to the subsidy, there’s a possibility of an additional deduction for special expenses and thus a tax saving. The Riester pension is usually inheritable. Early termination or payment results in the loss of tax benefits and allowances and thus the obligation to repay.
In UK, there are several private companies that offer a supplementary pension: life insurance companies, financial service providers, banks, Sparkasse banks, savings banks, private banks, capital investment companies and fund companies. Service providers for the supplementary pension are obliged to send their customers an annual report. The financial products that can be signed by their customers are numerous. For example, a private pension insurance or a fund or bank savings plan. All of them are involved in the regular payment of a sum of money. In the case of the fund savings plan, the service provider invests the capital in investment funds such as equity funds, pension funds or funds with a mixture of stocks and bonds. Of course, there are different opportunities for risk and reward depending on the type of assets invested. Bond funds typically use fixed income, government or corporate bonds. All investment products must meet certain requirements set by the state. This is the only way to get them certified by the Federal Central Tax Office (BZSt). However, certification is not a seal of quality or approval. It only confirms that the requirements for funding are in place
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