Concept of the needs-covering pension

Those who criticize should also provide concrete proposals. Following Flash 37, where we questioned whether insured persons always make the “capital or pension” decision in their own best interest, we now present a concrete approach to making this decision.

The economically relevant criteria are security, return and taxes. Until the accustomed standard of living in retirement is secured, the security criterion should take priority. Compared with withdrawing a lump sum, a pension eliminates both longevity risk and reinvestment risk in capital markets, providing greater financial security in retirement.

However, many people do not know their exact budget after retirement. Therefore, the needs assessment in the advisory process should be supported by creating a so-called standard budget, which can then be adjusted by the person receiving advice. For this purpose, high-quality data from the Household Budget Survey (HABE) of the Federal Statistical Office can be used. Depending on age and household size, six income-dependent standard budgets are derived.

The standard budget is divided into the main expenditure categories insurance and transfers, housing, living expenses and taxes, and can be further broken down into detailed spending categories if required. To improve accuracy, tax expenses are not taken directly from the HABE statistics but calculated individually using a tax calculator based on the taxpayer’s domicile and income.

The simple concept of a needs-covering pension is therefore the following: together with other guaranteed income after retirement – such as the AHV pension or possible rental income – the pension from the occupational pension fund should cover the standard budget.

If the pension fund pension exceeds the level required to cover basic needs, the surplus can be withdrawn either as a lump sum or as an additional pension, depending on tax effects, consumption preferences and reinvestment opportunities.

The advisory logic of the needs-covering pension is integrated into the advisory application p-alm pension developed by c-alm AG, which is used by pension funds and financial intermediaries to support advisory processes.