An employer asks its specialist advisor for the company’s lump-sum funded provident fund to inform a new employee about the company’s offer of a company pension plan. The employee wants to know from the specialist advisor what guaranteed lump-sum benefit he can expect when he reaches retirement age. Alternatively, he has an offer from a German insurance company for a direct insurance policy.
The employer has specified a possible deferred compensation of EUR 100.00 per month in the pension plan regulations for the pension fund and grants an employer subsidy of 25% of the contribution. This means that EUR 125.00 per month is invested in the pension fund. Interest is paid on the contributions and the employer subsidy at 2.0% p.a. in each case.
The calculations show that the employee, who is 22 years old, can receive a lump-sum benefit of EUR 106,892.66 from his employer’s pension fund at the age of 67. The guaranteed benefit of the direct insurance offered to him by his insurance company is EUR 77,846.00.
It turns out that there is a potential disadvantage of around EUR 29,000.00 (!). If the employer opts for an annuity instead of a lump-sum payment, the disadvantage increases significantly again.
The insurance company must therefore achieve a significantly higher interest rate in order to reliably achieve a comparable maturity benefit and to generate its costs as well as the calculated profit. Since the latter two items are taken into account in any case, deviations from the required interest rate will in any case affect the employee in the form of a poorer return.