Separating occupational disability and retirement can cost money

D.Protecting the workforce is equally important to consumer advocates and financial advisors. How this should be done, however, see both sides very differently: consumer advice centers advise first to acquire an independent occupational disability policy and then to put the remaining money in cheap investment funds. Financial advisors, on the other hand, tend to have a coupled pension policy with built-in disability protection. The financial broker MLP has now asked the Institute for Finance and Actuarial Sciences in Ulm to provide a scientific basis for the dispute.

The result is not clear, but encouraging for supporters of the by-products: “A blanket rejection of the basic pension with disability insurance is just as impossible as a blanket statement that this variant is always the better choice,” write the authors Sandra Blome, Jochen Ruß and Andreas Seyboth as a conclusion.

Their argumentation: A basic pension has greater advantages the more the individual tax rate in the retirement phase deviates from the current one. If you choose the same fund with an identical return, your calculation shows that, based on four sample cases, the tax advantages always outweigh the cost disadvantages compared to the separate solution. For consumers who can accept a lower tax rate than today in the retirement phase, the combination product is cheaper. With similarly high tax rates today and at retirement age, both are equally good.

No financial benefits for separate policies

“There is no clear advantage of the fund savings plan variant with independent occupational disability insurance in any of the cases under consideration,” the authors write. The income share in taxation depends on the age of the retired person. On the other hand, there is the advantage that the separate solution is more flexible. If necessary, the contracts could also be terminated separately from one another.

This is an important argument for those consumer advocates who advise customers who concluded contracts that were too expensive at a young age and no longer have financial leeway. For example, when they are starting a family and building a house, that can be a challenge. The study authors recommend individual advice from competent experts. “The advantage depends heavily on the individual situation of the individual consumer (tax rate, fund selection, etc.) and the specific selection of the underlying products and can be a good argument for some consumers to accept the lower flexibility of a basic pension”, you write.

The scientists refer to the switch option in modern contracts, which allows you to switch to an independent policy against occupational disability in the event of termination. In addition, coverage with an independent disability insurance is often more expensive than with the combination product. “General rejections of coupled solutions are not tenable – this is shown by the calculations of the Ifa Institute,” says Manfred Bauer, Chief Product Officer at MLP.

Despite the new study, Sandra Klug from the Hamburg consumer center holds against it. “The results are to be seen under the premise that consumers can hold out the contract to the end,” she says. “But life situations are changing.” Workforce security must have priority. She thinks that the study’s priorities – generating an equal return on old-age provision – could lead in the wrong direction. “We advise not to focus on tax savings,” she says.


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