Why private pensions for retirement provision could be lower

Reliable retirement provision is extremely important. Anyone who chooses private pension insurance should be aware of specific legal text.

Berlin – When a private pension becomes due, the monthly payments are calculated using the so-called pension factor. This is stated in the contract when the contract is concluded. However, if paid out many years later, it can be much lower. This is possible thanks to the little-known Section 163 of the VVG.

Anyone who takes out private, unit-linked pension insurance receives annual information about how high the savings will be when the insurance expires. And at the same time forecasts about the amount of the monthly Interest. However, many contracts do not state that Section 163 of the Insurance Contract Act (VVG) allows insurance companies to later reduce the amount of payouts.

Pension insurance: What is the pension factor?

When a unit-linked pension insurance starts paying out monthly private pensions, the saved balance is fixed. But the monthly payouts from the same balance are different for every insurance company. This is due to the pension factor, which every insurance company determines differently. An example: The pension factor of 30 results in a monthly pension of 300 euros for a balance of 100,000 euros, a pension factor of 25 leads to a monthly pension of 250 euros.

An elderly couple on a park bench: Anyone with private pension insurance should definitely know a section of the law. © Philipp Schulze / dpa

A study by the market research institute Franke & Bornberg from 2023 revealed a sad picture: “Compared from 2022 to 2021, the current pension factor has fallen in almost all companies. While the average in 2021 was 29.09 euros, in 2022 it will only be 25.97 euros – a decrease of 3.12 euros or 10.73 percent!” As an insured person, there is nothing you can do about these reductions in the calculation basis. Section 163 VVG allows insurance companies to recalculate the amount of payouts if the economic conditions have changed. Longer life expectancy and changes in interest rates can play a role.

Pension insurance: Only waiver of Section 163 VVG leads to a “hard guarantee”