The topics covered in our current newsletter are: “Corona and Pensions”, “Company Pension Strengthening Act – Update”, “Double Taxation of Pensions” and “Benchmarking-Report 2021”.
Table of Contents
- Corona and Pensions
- Company Pension Strengthening Act – Update
- Double Taxation of Pensions
- Benchmarking-Report 2021
Corona and Pensions
The benefit level of the statutory pension benefit in Germany has been declining for years. There are many reasons for this. Probably the two most important are the growing imbalance between the number of contributors and the number of beneficiaries as well as increasingly unsteady employment histories. The Corona pandemic has exacerbated this development with many employees losing their jobs or being affected by reduced working hours.
At the same time, the German state continues to calculate based off of the so-called “corner pensioner” who works for 45 years and earns an average uninterrupted income (2021: €3,450 gross per month*). This results in a “basic pension” of around €1,350 per month gross* for 2021, which is still subject to tax and contributions. The bottom line is that German corner pensioners will be left with less than 50 % net pension based on their last net income.
The reality is even more staggering: according to the latest available statistics from the German Pension Insurance Fund, male pensioners received an average of €1,139* at the end of 2019 and for women the average pension was just €710*, both also gross.
Of course, there are also higher earners in Germany. In absolute terms, retirement incomes are significantly higher for these people but due to the contribution assessment ceiling for pension insurance, they are often well below 50% of someone s last paid salary.
If you would like to learn more or find out what your pension payout would be follow the link to the German Pension Insurance website where they provides an online pension calculator::
On Sept. 26, 2021, a general election will be held; all parties are aiming for pension reforms according to their election campaigns. Any legislative changes will be determined by “was hinten rauskommt” – ‘what the end results is’(according to former chancellor Helmut Kohl).
For the customers served by Profion, this development means that the employer-financed pension plans they set up are becoming increasingly attractive to German employees.
*old federal states
Company Pension Strengthening Act – Update
The Company Pension Strengthening Act (BRSG for its initials in German) came into force on January 1, 2018. The legislator’s stated aim was to make occupational pensions significantly more attractive for both employers and employees in order to offset the decline in state-organized pensions through targeted subsidy schemes and tax relief.
The new regulations provided an impetus in many places to look at occupational pensions, but none of this does justice to the name of the law. Instead of releasing significantly more financial resources for company pension plans, as had been hoped, further complexity was created. The ongoing low-interest phase and the associated changes in the life insurance market in Germany (in particular, the planned successive reduction in the premium guarantee and the lowering of the maximum actuarial interest rate as of 2022 from the current level of 0.9 % to 0.25 %) have additionally hindered the implementation of such models.
Of the six issues codified under the BRSG, only one affects our customers, and then only if their employees select receiving remuneration via a direct insurance policy or pension fund. The BRSG stipulated a mandatory employer contribution of 15% for this case, provided that social security contributions are saved. This already applied to all new contracts as of 2019 and action is required for old contracts as of 2022. If you need advice, please contact your account manager, who will help you implement the legal requirements for these contracts accordingly.
Double Taxation of Pensions
Double taxation is avoided if the sum of tax-free pension inflows is at least as high as the sum of pension contributions made from taxed income, or vice versa.
The ruling deals with the consequences of the system switch to deferred taxation of retirement benefits introduced in 2005 by the Retirement Income Act. The legislators attempted to avoid double taxation by means of transitional regulations. In cases where double taxation nevertheless occurs – according to the plaintiff’s allegation – this can be corrected by case law.
Two main findings can be drawn from the ruling:
In the case of statutory pensions, the complicated mechanics of the Retirement Income Act and accompanying statutory regulations will increasingly lead to double taxation and corresponding court proceedings.
In the case of occupational (and private) pensions, there can be no double taxation of benefits for systemic reasons.
Profion conducts an Employee Benefits Benchmarking for tech and highly competitive industries in Germany every three years. The report is expected to be ready by the end of this year’s Q3.
In addition to benchmark data for pensions and risk coverage, the report will also collect data on fringe benefits for the first time.
At this stage, two trends are already emerging:
- All of the companies surveyed now offer their employees pension and/or risk coverage. The commitments are predominantly contribution-based and are mostly financed by the employer alone. The average contribution rate has risen in comparison to the 2018 report.
- In the case of fringe benefits, flexible working hours and home office are proving particularly popular especially due to the COVID pandemic; in the case of traditional fringe benefits company bicycle is becoming increasingly popular.
As soon as the report is completed, we will inform you in the following newsletters about the most important results.