Like any financial investment, capital-forming benefits also have advantages and disadvantages. We explain what to look out for, and how to get the most out of your VL. Pros and cons for employees and employers at a glance.
Overview: Advantages and disadvantages for employees
Advantages
- Since the money comes from the employer, it is possible to build up assets without having to save any money of your own.
- Capital-forming benefits offer savers a risk-free way to start investing in securities.
- Employees with lower incomes can additionally apply for a state subsidy.
- There is an investment option for almost any savings goal.
- Mutual fund savings or ETF offer good return opportunities.
- With a building savings contract you can secure favorable conditions when interest rates rise.
Disadvantages
- Interest and capital gains are taxable, as with any investment.
- Investments in securities can always be subject to short-term fluctuations in value.
- As with all savings contracts, VWL also incurs costs, which can reduce the yield.
- If you quit early, you may lose the right to the subsidy.
Overview: Pros & Cons for employers
Per
- For employers, VLs are a means of employee retention and appreciation.
- For qualified specialists they are an additional argument to choose a company.
- Companies can deduct the savings contributions from their taxes as operating costs.
Contra
- Capital-forming benefits are additional wage costs for a company.
- Recording in payroll means a little extra work for the accounting department.
Making the right use of benefits: How to benefit from VL
Capital-forming benefits offer savers many advantages. However, making the most of this requires some knowledge. The following tips will help you get the most out of your VWLs.
Start as early as possible: VL are a gift from your employer that you should take advantage of from day one if possible. The simple rule applies: time is money. The best time to apply for it is when you start your education. Even if you change employers, you should take care of continued payments in a timely manner.
Choose the right type of investment: You will benefit the most if you invest your capital-forming payments correctly. The best return can be achieved with fund savings or ETFs. Currently, interest rates on home loans are on the rise again. By paying into a building savings contract, you can secure favorable conditions for financing your property. If you already have a loan for owner-occupied residential property, you can use the VL as additional repayment. If you take out several VL contracts in succession, you can also use them to build up an additional retirement provision.
Think as long term as possible: VL have a fixed term, which is made up of 6 years of payments and one year of rest. If you don't really need the money after 7 years, you can simply continue to save it. The longer you accumulate capital, the higher the return in the end. This is made possible by the so-called compound interest effect.
Check your entitlement to state subsidies: The requirements for this can be found in the chapter employee savings allowance. Attention: Not all forms of investment are subsidized. In addition, certain income limits apply.
Amount can be topped up: if you receive less than 40 euros of VL per month from your company, you should pay the difference yourself. 1. A higher savings rate means a higher payout in the end. 2. Some providers require a minimum monthly savings contribution. This means you can still take advantage of an attractive offer, even if the employer's contribution is too low.
Invest in funds without risk: Capital-forming benefits are the perfect introduction to securities. Those who have never invested in stocks or funds before can get their first experience without taking a risk. Since the money is paid by the boss, you don't have to use your own.
Avoid disadvantages with VL: Here's how
As with any investment, some risks must be taken into account when investing in capital formation benefits. With the following tricks can be minimized, or even completely avoided.
Find out about the costs: in the case of home savings contracts, a signing fee is payable, which, depending on the tariff, can be up to 1 percent of the home savings sum. Fund savings plans also include fees, such as the front-end load, which is between 3 and 5 percent. You can avoid the issue surcharge for the most part by choosing a VL custody account with a corresponding discount.
Never cancel your VL prematurely: you may then lose your right to the government subsidy. The employee savings allowance is tied to a fixed term of 7 years, the so-called lock-up period. Also, the longer you save, the higher your interest rate will be. This effect will be nullified if the capital is withdrawn early.
Don't get rattled: Short-term fluctuations in funds are quite normal. Do not let this impress you. In the long term, losses on the stock market are usually compensated, and in the end there is a profit. If a fund actually develops permanently negative, you can change it once a year, by the way, without canceling your VL contract.
Avoiding final withholding tax: The taxation of income can be prevented with a so-called exemption order. You submit this to your bank. Investment income up to an amount of 801 euros per year for single people and 1.602 euros for married people are thus tax free. For most consumers the topic final withholding tax has itself thereby settled.
Income tax and social security contributions: VL are subject to tax and social security contributions as part of the salary. In principle, it works just like a salary increase, part of which also goes to the tax office and the health insurance company. The levies can be avoided only if the employer pays so-called retirement benefits (AVWL) instead of the normal capital-forming benefits. In this case, the savings amounts are exempt from tax and social security contributions.