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New Regulations on Occupational Pensions in Germany New regulations on occupational pensions in Germany ESPN Flash Report 2017/63 GERHARD BÄCKER– EUROPEAN SOCIAL POLICY NETWORK JULY 2017 A few months before Description the federal elections, the Federal Parliament For several years, the reform of the contracts and with average-to-higher passed legislation pension system has been a key issue in incomes. This means that for more than introducing far- the German social policy debate. The 40% of the work force the declining reaching changes to main difficulties to be resolved are the level of pensions paid under the the rules governing avoidance of old-age poverty and the statutory pension insurance scheme occupational pension maintenance of living standards in old (SPI) is unlikely to be offset by the schemes. As part of age. However, the Grand Coalition, accrual of entitlements in occupational the collective which came into power in 2013, has pension schemes. bargaining process, it failed to put forward a proposal for will now be possible to longer-term reform because the The aim of the new law, which will come agree defined Christian Democrats and the Social into force on 1 January 2018, is to contribution Democrats have been unable to reach extend the coverage of occupational occupational pension agreement. Thus in the final phase of pensions. The focus of the regulations is schemes without any the current legislative period only a few on the introduction of a so-called social warranty liability more narrowly focused reforms have partnership model: concerning minimum been introduced. In June 2017, the The new law allows pure defined benefits or interest Federal Parliament enacted three bills: contribution schemes (also referred rates being imposed “Improvements in Benefits for to as “pay and forget” schemes), i.e. on the company. In Recipients of a Reduced Earnings plans with no minimum benefit or addition, many new Capacity Pension”, “Conclusion of the interest guarantees. These schemes regulations have been Pension Transfer between West and expand and act as a top-up to incorporated into the East Germany” and “Strengthening existing occupational schemes, most Occupational Pensions Occupational Pensions”. The latter of which are defined benefit Act. (Betriebsrentenstärkungsgesetz) is the schemes, or defined contribution focus of this Flash Report. schemes with a guarantee of a minimum investment return of 0%. In Germany, only a certain proportion of employees acquire entitlements to Many employers had been shying occupational pensions, because access away from offering pension plans because of the long-term liabilities LEGAL NOTICE to such schemes is usually voluntary and is normally determined by collective they entail and the required top-up This document has been payments for guarantees. prepared for the European agreements negotiated at sector or Commission. However, it company level or by company The new schemes are permitted only reflects the views only of the agreements. The coverage rate was authors, and the Commission if they are negotiated as part of the cannot be held responsible about 57% in 2015 (latest figures collective bargaining process. The for any use which may be available). The beneficiaries are pension fund must be managed made of the information predominantly male workers employed jointly by trade unions and contained therein. in large companies on standard employers’ organisations, and precondition for either a state only staff covered by a subsidy (supplements) or extra Further reading collective bargaining agreement tax relief (known as the Riester- may make contributions. Rente) is raised from €154 to Deutscher Bundestag (2017), €175. Bundestagsanhörung zum The new schemes can be set up Gesetzentwurf am 24.03.2017: either as new industry pension Tax incentives are being Schriftliche Stellungnahmen von funds, or within the framework introduced to encourage Verbänden und of existing pension funds and employers to pay occupational Einzelsachverständigen, Deutscher direct insurance contracts as pension contributions for low- Bundestag Ausschussdrucksache permitted funding vehicles. income earners (up to €2,200 18(11)971. [German Federal per month). Parliament (2017), Hearing on the This “social partnership model” draft bill on 24 March 2017, will offer the possibility of For the “needs-based pension written comments from national automatic earnings conversion supplement in old age” and in associations and individual for all employees of a company the event of “reduced earning experts, Federal Parliament – i.e., the employees’ earnings capacity”, as defined in Social Committee document No. up to a certain limit (4% of the Code Book XII, an allowance for 18(11)971.] contribution assessment ceiling low voluntary additional pension Bäcker, G. (2017), of the statutory pension payments is introduced (up to Verbesserungen bei den insurance scheme, i.e. €254 per €202 per month). Erwerbsminderungsrenten und month in 2017) are used to Herstellung der Renteneinheit, accumulate an occupational Outlook & Anhörung des pension fund. The employees commentary Bundestagsausschusses Arbeit und can, however, opt out. Soziales am 12.05.2017, Collective agreements are a The Strengthening Occupational Schriftliche Stellungnahme, in: prerequisite in this case as well. Pensions Act has been intensively IAQ-Standpunkt 01/2017. [Bäcker, discussed and developed in G. (2017), Improvements in Entitlements accrued under consultation with the umbrella Reduced Earnings Capacity defined benefits schemes are organisations of the trade unions Pensions and Conclusion of the non-forfeitable from the outset. and employers. However, the new Pension Transfer between West In contrast, entitlements law was and remains extremely and East Germany, Hearing of the accrued under “traditional” controversial within the trade Federal Parliament Committee on defined benefit schemes, which unions. In particular, attitudes Labour and Social Affairs on the may still co-exist with the new towards defined contribution draft bill on 12 May 2017, written schemes, are not protected in schemes vary considerably. On the comment, in: IAQ-Standpunkt this way until a certain period of one hand, the exclusion of any 01/2017.] employment (“vesting period”) performance guarantees may Authors has elapsed. expand the investment Gerhard Bäcker, University of Because employers profit from opportunities in global stock Duisburg/Essen reduced SPI contributions in the markets in a low-interest rate case of an earnings conversion, environment. On the other hand, they are required to pay at least employees have no certainty about 15% of the converted earnings the eventual value of their as a bonus payment into the occupational pensions. Even the employee’s defined contribution risk of losses cannot be excluded. account. If the objective is to have a reliable The plans are regulated under income in old age that is adjusted the Insurance Supervision Act. in line with the general evolution of wages and prices, then a defined In addition, there are other new contribution scheme is not regulations: recommended. It remains to be The maximum amount of the seen how the trade unions and tax-free earnings conversion is employers’ organisations will raised from 4% to 8% of the SPI perceive the new possibilities contribution ceiling. offered by this social partnership model. The basic allowance for private pension contracts that fulfil certain requirements as a The Flash Reports are produced by the European Social Policy Network (ESPN) established in 2014 to provide the European Commission with independent information, analysis and expertise on social policies in 35 European countries. The topics covered are identified by ESPN experts in the light of significant developments in their countries, or in some cases suggested by the Commission or the Flash Reports’ editorial team (Eric Marlier, Slavina Spasova and Bart Vanhercke). The ESPN is managed by LISER (Luxembourg Institute of Socio-Economic Research), APPLICA and the OSE (European Social Observatory). More information on the ESPN: http://ec.europa.eu/social/main.jsp?catId=1135&langId=en. .
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