The company pension scheme is the second pillar of the German pension system. Boss and employees can save together for retirement with government help. FOCUS Online explains the advantages and disadvantages of the current models.
The employee benefits, the boss saves and the state is also relieved. To be too good to be true? It really is.
The company pension scheme (bAV) offers all three advantages:
But despite these advantages, not everyone in this country has a company pension scheme. Of the almost 34 million employees in Germany who are subject to social security contributions, only a good 16.5 million have concluded an occupational pension contract. In other countries, such as Switzerland or the Netherlands, the proportion is much higher.
The FOCUS Online guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
With so-called direct insurance, the employer converts part of the employee’s gross salary directly into a company pension scheme. The state subsidy means that the Treasury does not demand taxes and social security contributions on these amounts during the savings phase – but not indefinitely.
In principle, a maximum of eight percent of the western contribution assessment limit may be converted tax-free per year. That is 6768 euros in 2022.
In addition, four percent of the BBG West remain exempt from social security contributions – i.e. 3384 euros. An employee who invests this contribution in direct insurance, for example, can save a lot on taxes and social security contributions in 2022.
There are five types of subsidized company pension: as
The differences lie on the one hand in the tax assessment, on the other hand in the way in which these contributions are then invested.
Direct insurance is similar to normal private life insurance. However, the policyholder is the employer. He takes out the policy on the employee’s life. The insurance later pays the pension directly to the employee or their surviving dependents. The contributions for the insurance can be borne by the employee (employee-financed direct insurance from salary or special payments) or by the boss (company-financed direct insurance).
The second alternative is a pension fund of the pension providers. This is a legally independent pension scheme – similar to a private life insurance company – that is controlled by the insurance supervisory authority.
The pension fund is an independent and autonomous pension institution that provides retirement benefits and is also subject to state insurance supervision. The retirement benefits of the pension fund are regulated by pension plans for the employees of one or more employers. The boss transfers the contributions to the pension fund.
Tip: In addition to the four percent of the contribution assessment limit West, employees with direct insurance, pension funds or funds can convert an additional 1800 euros tax-free under certain conditions. In addition, these three implementation methods can in principle also be combined with a Riester subsidy. The prerequisite for this, however, is that you pay the contributions from your taxed and social security-related earnings, i.e. from your net salary.
The provident fund and direct commitment are not external implementation methods, but rather internal ones, so to speak. Therefore a combination with Riester is not possible.
In the case of a direct commitment, the employer undertakes to pay a company pension from company assets at retirement age. He creates pension provisions for this. The provident fund is a legally independent pension fund formed by one or more companies. It grants the employee or his/her surviving dependents a pension benefit promised by the employer. The employee himself is not entitled to benefits from the provident fund, but only from his employer.
In order to expand the share of company pension schemes, the federal government must make the offers more attractive. Among other things, it is being considered to increase the proportion of the gross salary that employees can convert tax-free into company pensions.
However, the entire German system of statutory pensions must be reformed in the medium term: demographic change is forcing adjustments so that pensions can be financed in the long term. A Herculean task for the traffic light federal government.
Back to the current status in 2022: Employers currently receive grants of up to 144 euros if they pay into the company pension scheme (bAV) for low earners with a maximum monthly income of 2200 euros.
If the employee changes jobs, what happens to the contracts depends on the respective implementation route. For direct insurance, pension funds and pension funds, the employee can simply take the occupational pension entitlements they have acquired up to that point with them. The new employer then either joins the existing contract or enables his new employee to transfer the capital already saved to the in-house insurer.
Attention: The contract change can have disadvantages if the employee has to enter into a new contract with worse conditions.
In the case of the provident fund and the direct commitment, employees who leave the company are not entitled to continue to build up the pension with their own contributions. However, entitlements that you have acquired up to that point will be retained.
If the insured person becomes unemployed, he does not lose his company pension – it is protected under Hartz IV. Even if the company goes bankrupt, the company pensions are protected. If an employee builds up his or her pension through a direct commitment, a support fund or a pension fund, the pension insurance association (PSVaG) secures the “vested” entitlements to a company pension that have been acquired as a result.
A direct insurance or pension fund is not affected at all by the insolvency of the employer. In both cases, these are insurance companies that are economically independent of the employer, the portfolios are managed by insurers. You will at least pay the guaranteed pension when you retire, even if your previous employer no longer exists.
If the employee reaches the agreed retirement age, the money usually flows in the form of a lifelong pension. In individual cases, however, a capital payment can also be selected as an option. The payouts will be received by savers at the age of 62 at the earliest.
In the past, company pensioners had to pay full tax on their earnings after deducting the pension allowance. In addition, those with statutory health insurance paid the full contribution to health and nursing care insurance – around 19 percent.
Something has changed here since 2021: Since then, the health insurance companies have only received contributions for that part of the pension that exceeds 164.50 euros per month.
Calculation example: A company pensioner receives 700 euros per month from his direct insurance. By the end of 2019, he had to pay health and nursing care insurance contributions on the full amount.
Those were:
14.6% health insurance contribution €102.20, plus 0.9% additional contribution from the cash register €6.30, plus 3.05% long-term care insurance €21.35 = total monthly deductions €129.85
As of 2021, the bill looks like this:
€700 company pension less €164.50 allowance = €535.50. Taxes only apply to this amount, i.e.:
14.6% health insurance contribution €78.18, plus 1.3% additional contribution from the cash register €6.96, plus 3.05% long-term care insurance €16.33 = total monthly deductions €101.47.
The monthly saving is therefore 28.38 euros.
But there is even more to consider: The gross salary used to calculate the statutory pension decreases during working life as a result of deferred compensation. “Over the years, that can make itself felt. In the worst case, this reduction and the levies in old age will even make bAV a zero-sum game,” warns Thomas Hentschel from the North Rhine-Westphalia Consumer Advice Center. Like many other experts, he therefore considers occupational pensions to be a lucrative pension option when the employer contributes to the contributions.
Once the way of implementation and the boss’s share have been clarified, the employee must also deal with the various pension products. Direct insurance, for example, is available as classic pension insurance or as a unit-linked policy. Each employee decides according to their own perception of risk whether they want more guarantees and security or more opportunities and risks.
The classic pension insurance currently only guarantees an interest rate of 0.25 percent, plus an annual profit sharing. At the end of the contract, there are still final surpluses and possibly a share in the insurer’s hidden reserves. How much the saver benefits depends not least on how well the provider manages. However, in times of low interest rates and high inflation, the bottom line is that no returns can be expected.
If you rate the earnings potential of shares as higher, you can choose fund policies. The insurers then invest the premiums exclusively in investment funds. The customer can put together his individual portfolio according to his risk profile and his current market assessment or leave it to the professionals.
So-called hybrid policies have also been around for some time. This type of insurance splits customer funds: one part flows into fixed-interest investments or the cover pool, the other part is available for more profitable investments.