The topics covered in our current newsletter are: “Reform of private pensions: GDV’s “citizen’s pension””, “Case law: BGH decision on an employee’s right to object to a company pension plan”, “Calculation parameters in social insurance 2023” and “Stable development of the EPF”.
Table of Contents
- Reform of private pensions: GDV’s “citizen’s pension”
- Case law: BGH decision on an employee’s right to object to a company pension plan
- Calculation parameters in social insurance 2023
- Stable development of the EPF
“Citizens’ pension” – a new approach to pension reform
The latest figures on the Riester pension as a state-subsidized retirement provision have once again highlighted the gaps and inadequacies in private retirement provision: 60% fewer new contracts, more than a quarter of all contracts are not saved at all, portfolios are falling overall and quite a few providers have withdrawn altogether.
A focus group set up by the government coalition has therefore been tasked with examining the possible introduction of a publicly managed pension fund on the one hand, and the recognition and promotion of possible new investment products on the other. Just in time for the start of this focus group’s work, the German Insurance Association (GDV) has now published its own proposal under the title “Citizens’ Pension”.
The citizen’s pension is intended to replace the Riester pension as a standardized retirement provision product with non-bureaucratic subsidies. The key points of the concept are a lowered guarantee in order to take advantage of more opportunities for returns. The state subsidy is to be made simpler and easier to understand: For every euro paid in, there is to be a state subsidy of 50 cents, and the subsidy limit is to be set at 4% of the contribution assessment ceiling in the general pension insurance scheme. This would currently correspond to a maximum personal contribution of 3,504 euros per year, in which case the subsidy would be 1,752 euros. Contributions would remain tax-free, while benefits would be subject to deferred taxation. Finally, the group of people eligible for the subsidy is to be expanded, and a standardized product is also to ensure lean processes and cost-effective products. It remains to be seen whether the insurance industry will be able to get its way. The distrust of politicians after more than 20 failed Riester years is deep-seated. In any case, the Federation of German Consumer Organizations (vzbv) sees a publicly managed pension fund as clearly superior to private offerings. And the fund association BVI is in favor of a subsidized deposit for fund savings plans for retirement provision.
The bottom line is that even the umpteenth attempt at reform will not be able to hide the fact that German policymakers have failed when it comes to retirement provision. Germany has lost more than 20 years of savings time in functioning hedging instruments; their characteristics are: Simplicity, flexibility in the savings and payout phases, low cost, high returns. Occupational pensions cannot compensate for this socially undesirable development, but they can offer the employees concerned adequate prospects, provided they are adequately funded.
Case law: BGH decision on an employee’s right to object to a company pension plan
In a decision of May 4, 2022 (IV ZR 201/20), which has since been published, the Federal Court of Justice (BGH) ruled on the question, which has long been the subject of controversy, of whether an employee has a right of objection to a life insurance policy taken out as part of a company pension plan. The BGH ruled that this was not the case, as it was incompatible with the purpose of the company pension plan.
The dispute was based on the following facts: The plaintiff’s former employer had taken out a total of three pension insurance policies for him in the form of direct insurance as part of a group insurance contract in 1999 and 2006. As an employee at the time, the plaintiff was the insured person and financed the contracts through deferred compensation. After the end of the employment relationship in 2010, the plaintiff continued the three contracts himself as policyholder without making any contributions. In 2012, the plaintiff terminated the three insurance contracts, and the insurance company consequently paid out the surrender values to him. In 2017, he then declared his objection to the conclusion of all contracts and demanded payment of all premiums plus surpluses generated and less the surrender values already paid out. He justified this on the grounds that the insurer’s objection instructions had been inadequate in every case when the contract was concluded. Although he was not initially the policyholder, he nevertheless had a right of objection, since he had signed the contracts himself as the person to be insured in the applications. Moreover, he should have been informed again about his right to object after the contracts were taken over in 2010. This had not been done either. The plaintiff therefore demanded a reversal of the three policies.
The BGH clearly rejected the plaintiff’s request. The BGH ruled that the transfer of a right of cancellation by the company to the employee is always incompatible with the purpose of a life insurance policy taken out as part of a company pension plan if the contract is secured by the statutory prohibition on assignment or mortgaging by the employee. The BGH pointed out that such restrictions on disposal are intended to preserve the existing entitlements for the purpose of the pension. In this way, the legislator had intended to prevent an employee from dissolving the entitlement and using it for other purposes.
Note: All EPF benefit plans provide for a corresponding restraint on disposal, so that disputes such as the one described are ruled out from the outset.
Social Security 2023 calculation adjustments (in addition to the values already communicated in the 11/2022 newsletter)
The calculation parameters in social insurance adjusted as of January 1, 2023 are as follows: The contribution assessment ceiling in the general pension insurance (BBG-RV) will increase from 7,050 euros/month to 7,300 euros/month (East: from 6,750 euros/month to 7,100 euros/month). This increase more than compensates for the first-time reduction in the BBG-RV in 2022; the calculation parameters are decisive for many subsidy limits in occupational pension schemes.
The nationally uniform compulsory insurance limit in statutory health insurance increases to 66,600 euros/year, and the contribution assessment limit for 2022 in statutory health insurance, which is also uniform throughout Germany, increases to 59,850 euros/year (2022: 58,050 euros/year) or 4,987.50 euros/month. The adjustments are based on the wage development in 2021 of 3.30 percent (West) and 3.31 percent (East). The insurance limit determines up to which income employees in Germany can participate in the state-organized health insurance or above which income they can take out private health insurance.
Stable development of the EPF
The EPF’s approach of using the statutory options of a provident fund to provide attractive retirement and risk coverage for employees is reflected in the high and continuously growing acceptance of the EPF among companies and their employees. Thus, the membership grew significantly in 2021 and expanded by 120 new sponsoring companies. The EPF thus currently covers around 81,000 beneficiaries in Germany. The current target retirement pension level is guaranteed over the entire portfolio (i.e. without any possible additional surpluses) at 400 euros gross per month. This is a strong benefit for all participating beneficiaries – not least against the background that these are almost exclusively employer-funded pension plans.