The recognition of fictitious insurance years is one of the most popular options for insured individuals who wish to qualify for retirement benefits sooner or increase the final amount of their primary pension. However, the key question on everyone’s mind is a financial one: How much does the buy-in cost, by how much does the monthly pension increase, and how long does it take to recoup the investment?
To understand how this works, let’s examine a specific and representative example of an insured person with 36 years of actual service. This employee chooses to have 48 months of imputed service (i.e., 4 additional years) recognized in order to reach the critical 40-year mark required for full retirement. With a final gross salary of 2,000 euros, the total cost of buying back the 4 years amounts to 19,200 euros.
If the insured person retired after 36 years, their gross primary pension would amount to 1,243 euros, which, after health insurance and tax deductions, translates to 1,088 euros net take-home pay. With the addition of the 4 notional years and the completion of 40 years of insurance coverage, the gross pension increases to 1,447 euros. After the corresponding withholding of tax and health insurance contributions, the net monthly pension amounts to 1,238 euros.
The benefit is immediate and tangible, as the retiree gains an additional 150 euros net each month. Dividing the total cost of 19,200 euros by the monthly net gain of 150 euros shows that the payback period for the investment is 128 months (i.e., approximately 10.5 years). After this period ends, any increase represents net profit.
To calculate your own scenario and see the buyout cost based on your years of service and salary, click here.