Retirement planning in marriage and partnership

In many marriages and long-term relationships, one person takes care of retirement planning — often it’s the man. But what is a woman entitled to for her pension in the event of a separation or the death of her husband? Spoiler: often not enough to live on. We reveal how you can remain financially independent.

Marriage: a financial risk?

In long-term partnerships or marriages, it goes without saying: both partners are there for each other — also financially. If one of the partners works part-time or not at all, for example to take care of joint children, the other compensates. For the moment, this is certainly a good and practical solution. However, when (married) couples separate, it usually turns out that it remains good and practical only for the main or sole earner.

In most cases, it is the man who earns (good) money for years, develops his career and constantly pays into the pension fund. It is he who also makes private pension provisions to supplement the pension payments.

The short-term financial advantages of this division of roles are obvious: In most cases, men earn more than their wives. It is therefore easier to provide for a family on the man’s salary.

Women often forego professional qualifications, careers and thus their own income, and thus miss out on the opportunity to build up their own pensions.

Katharina Staffe

A woman takes off her wedding ring

If the marriage fails, many of these women find themselves on the poverty line, warns Katharina Staffe, senior consultant for occupational pensions at the Association of Public Insurers in Düsseldorf.

Statistics bear this out: Women have around 40 percent less money at their disposal after divorces, while men have to get by with only seven percent less. And those who have less money will also be less able to take care of their old-age provision.

Women are therefore often doubly disadvantaged financially after separations: With their partner, they not only lose their old-age security, but also the opportunity to build up their own pension.

Protected by spousal maintenance?

Anyone who relies on receiving sufficient alimony from their ex-partner in the event of a divorce is out of luck. The alimony law, which was reformed in 2008, significantly restricts this.

This regulation is intended to encourage more (married) women to take responsibility for their own careers, go out to work themselves and thus make independent provision for their old age.

However, the desired effect has so far failed to materialize because the controversial marital splitting scheme promises greater advantages. In Germany, it leads to women working less. Nowhere in Europe or the USA do women contribute so little to family income as in the western states of Germany.

Thus, the state rewards and promotes the traditional sole breadwinner model of the man — and in the long term ensures that women receive a state pension that is far too low.

Secured by pension equalization?

It doesn’t matter whether both partners earn a similar amount or whether there is a gap between the two incomes: In the event of a divorce, there is usually a so-called pension equalization. Every pension entitlement that arose during the marriage is added up and 50 percent is allocated to each partner. A woman who has worked little or not at all thus receives part of her ex-husband’s pension payments.

However, it is not advisable to rely on this pension equalization alone. After all, how much it is depends on how long you were married and how many pension points your husband has accumulated during that time. Example:

You were married for ten years to a man who earns 3,156 euros per month. This value corresponds to the assumed average income and thus one pension point per year.

Pension equalization: calculation example after 10 years of marriage

If you did not earn any money yourself during the ten years, you will receive five of your ex-husband’s ten pension points after the divorce. This currently corresponds (West Germany/2019) to five times 32.94 euros, or 164.70 euros per month. Not very much, is it?

Secured by widow’s pension?

Not only a separation, but also the death of the husband can lead to women having to make ends meet financially on their own from one day to the next.

Although survivors then receive the so-called widow’s pension — provided they are already of retirement age — this is often too small to live well on. Depending on how long you were married, the survivor’s pension is only 55 to 60 percent of the deceased’s pension. If you don’t have your own pension, you’ll soon run out of money.

Secured by a prenuptial agreement?

A woman looks thoughtfully out of the window

One way for women to protect themselves is to sign a prenuptial agreement (in official German: Trennungs- und Scheidungsfolgenvereinbarung), which regulates the property situation after a possible separation. Special agreements can be made here for the separation of property, equalization of pensions or spousal support.

Women reject this more often than men because they find it unromantic. And perhaps also because they fear disadvantages for themselves.

Quite rightly. «People are always advised to have a prenuptial agreement, but usually only the better-off partner wants to protect himself with it — and that is usually the man,» says Katharina Staffe.

If you do decide to sign a prenuptial agreement, be sure to get good advice so that the contract does not turn out to be disadvantageous for you or your partner.

Without a marriage certificate — old-age provision in a common-law partnership

Non-marital partnerships do not have the same legal status as marriages. For this reason, financial independence is even more important for women in partnerships without a marriage certificate.

After a separation, for example, they are not entitled to pension equalization if they have not worked due to having children together or have taken care of relatives in need of care. In addition, unmarried survivors do not receive a widow’s pension if their partner dies.

You are only entitled to money from your ex-partner if you have joint children who are under three years old. However, this does not mean that you can stand on your own two feet financially. And your old-age provision is not secured either.

How to make independent provision

Ultimately, it doesn’t matter whether you are married or in a permanent partnership: It is important that you take your old-age provision into your own hands and are not dependent on your (husband).

Of course, the easiest way to do this is to work and build up your own retirement provision step by step. But there are also good tips for other life plans:

You are employed

«Women who have a stable employment relationship should take advantage of company pension schemes (bAV), explains Katharina Staffe, adding: «This can be done through deferred compensation, for example.»

In this case, one’s own contributions are paid from gross income, and one saves social security contributions and taxes.

Staffe: «But perhaps the employer also supports the bAV, because thanks to the introduction of the Betriebsrentenstärkungsgesetz (BRSG — Company Pension Strengthening Act), employers receive a subsidy from the state if they provide an employer-financed company pension to employees with a gross monthly salary of no more than 2,200 euros — and that’s in addition to their salary.» Check with your employer.

You don’t work or only work a little

A woman strokes a chair

Diplom-Kauffrau Staffe also knows, however, that many women cannot work because they have to take care of the children, the household or care for relatives, for example. In such cases, however, she says it is especially important for them to think about private retirement planning.

«The options are very diverse and make sense for everyone individually. The most important thing is that women deal with the topic in the first place and get advice on the many options,» says the expert. «It may be inconvenient and perhaps uncomfortable, but it pays off in the end.»

Among the best-known models is the so-called Riester pension. Those who earn little or nothing can receive the full state subsidy from as little as 60 euros per year. The contributions can also be deducted from taxes, but the pension itself is taxable.

The Riester pension is flexible and can be adjusted over time and as life situations and incomes change.

«It is very interesting for mothers because, in addition to a basic allowance of 175 euros, there is also 300 euros for each child eligible for child benefit born after 2008,» says Katharina Staffe.

Pension insurance: More security — or more return?

Private pension insurance remains one of the classic private pension options. It offers a high level of security because it guarantees lifelong benefits as soon as the contract is concluded and losses are excluded. In addition, the insurance companies pay out a surplus participation from the annual return. In this way, the private pension increases with each contract year.

«Private annuity insurance is convenient and flexible because the payment can be varied and the payout can be made either as a lifelong annuity, as a lump-sum payment in one go, or to a survivor in the event of premature death,» says pension specialist Staffe.

Those who are more willing to take risks can, for example, also pay into a unit-linked pension insurance and combine a fund savings plan in high-yield stock market segments with an annuity insurance.

However, the potential returns also depend on the movements on the stock market and thus on the investment success achieved «That is why, when investing money on the stock markets, attention should always be paid to a long investment period,» warns Katharina Staffe.

Building the future on more than one pillar

In the end, there is no one-size-fits-all solution when it comes to retirement planning. On the contrary, the options are almost as diverse as the biographies. But one thing can be said with certainty: The statutory pension alone is not enough to maintain the standard of living. Today, a solid old-age provision that enables both husband and wife to look to the future without worries has to be spread across various pillars.

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