The Bundesrat, the constitutional body representing German states, has recommended reviewing some points of the second pillar pension reform – Betriebsrentenstärkungsgesetz II – drafted by the ‘traffic light’ coalition government.
The Bundesrat has welcomed the plan of the traffic light government coalition – which consisted of the social democratic party (SPD), the Greens and the liberal party (FDP) and collapsed in November – to review the legal framework to boost company pension schemes.
It backs the plan to increase annual funding to support low earners who want to sign up to occupational pension contracts. The annual funding for low earners increases from a maximum of €288 to €360 in the law drafted by the traffic light coalition government.
However, it believes the funding “is still too low to enable low-income earners to build up sufficient company pension provisions”.
Employees with low incomes generally have little scope for building up a company pension plan and are therefore particularly dependent on the financial support of employers, it added.
Therefore, the Bunderat recommends reviewing whether a significant increase in the maximum possible amount of funding beyond a wage adjustment is possible.
It is also proposing a review in a further legislative process on whether tax deductions for social insurance can go up to 8% of the formula used to calculate contributions. This would effectively increase the attractiveness of company pension schemes and reduce bureaucracy, it added.
The Bundesrat is also asking for tax exemption of the severance payments to be waived.
The law drafted by the previous government foresees tax exemptions on severance payments for people entitled to a small pension, if the employer uses severance payments to pay contributions for statutory pensions.
The previous government intended for both severance payments and subsequent benefits from the statutory pension insurance not to be taxed (risk of double taxation).
The tax exemption could lead to both legal disputes and double benefits, the Bundesrat said.
The German constitutional body views with favour the possibility to offer pure defined contribution (DC) schemes for third parties not bound by collective bargaining agreements under the social partner model.
The review recommended by the Bundesrat means that the second pillar pensions system reform could change its shape if the next government decides to continue on the path laid out by the previous cabinet.
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