Versorgungsanstalt des Bundes und der Länder (VBL), Germany’s supplementary pension provider for public sector employees, has warned of a “significant financial impact” resulting from expanding options to pay out severance packages in the second pillar reform proposed by the government.
VBL sees the measures to expand severance packages “critically” for mandatory pension contracts, especially for the pay-as-you-go and mixed-financed supplementary benefits in the public sector. The scheme offers mandatory pension contracts for public sector employees.
In the case of pay-as-you-go and mixed-financed supplementary pensions, there is no capital available, or is available only for part of the vested entitlements in case the employment relationship ends before retirement, it added.
Therefore, severance packages would have to be additionally financed from contributions intended to finance pension benefits, and such payments are not taken into account in current financing reports, VBL said in a statement.
The financial impact of severance packages according to new rules “could be significant”, it said, adding that, according to an initial estimate, over 370,000 VBL’s members without contributions have vested benefits.
VBL noted that, given the “special characteristics” of supplementary pensions in the public sector, the severance payments foreseen in the Company Pension Act (BetrAVG) should be limited.
The scheme is asking that the regulations on severance payments do not apply for the part of the Company Pension Act with special rules for public employees.
The pension fund has underlined challenges posed by the payment of severance packages by employers to employees foreseen in the draft bill of the second pillar pension reform in a statement written to the Federal Ministry of Labour and Social Affairs (BMAS).
The German government wants to allow for severance packages for people entitled to a small amount of pension in the statutory pension insurance to be built up if the employment contract parties agree.
The limit for severance payments is increased if the amount is paid into the first pillar system with the consent of employees. In the event of the liquidation of a Pensionskasse, and the capital accrued is paid out to those entitled to pension benefits, the employer will take a corresponding severance payment, according to the draft bill.
In the public sector, entitlements accrued from different employers are already bundled and, in VBL’s view, there is no need for severance packages on individual, smaller vested entitlements.
VBL has signed agreements with municipal and church supplementary pension funds to bundle entitlements accrued by members from different employers, it said.
VBL is therefore also demanding a bypass of severance payments that would only refer to the funded part of pensions, likely resulting in a fragmentation of entitlements, therefore going against the plan of the legislator to consolidate entitlements.
No comments yet