Retirement Provision, Private and Occupational (Altersvorsorge)

Concept

Retirement provision refers to the planned financial protection of one’s standard of living in old age, once employment income ceases upon retirement. It encompasses all measures and products through which capital is saved, or entitlements acquired, during working life that become available in retirement as an ongoing pension or a lump sum.

The Three Pillars of Retirement Provision

In many jurisdictions, retirement provision is organized in a multi-pillar system: the first pillar consists of the state social security system, usually financed on a pay-as-you-go basis, intended to guarantee basic provision; the second pillar comprises occupational pension provision, in which employers and employees jointly pay contributions into a funded pension system; the third pillar, finally, consists of voluntary private pension products, through which individuals build up additional retirement capital, often with tax incentives.

Products of Private and Occupational Provision

Common products of the second and third pillars include endowment and unit-linked life insurance, private and occupational pension insurance, and pure savings products with a retirement provision character; given demographic developments and the increasing strain on pay-as-you-go state systems, the funded second and third pillars are continuously gaining importance in many countries for securing standards of living in old age.