Company pension scheme: Termination, nullity and compensation of pension commitments

– How to exit from unprofitable contracts with a low tax burden -.


Contrary to claims to the contrary, the assets saved in the company pension scheme (bAV) can, as a rule, be dissolved prematurely. This applies both to the occupational pension scheme of normal employees and to managing directors and board members – even after an insolvency with deletion of the GmbH or AG from the commercial register.


Entitlement to dissolution of deferred compensation by mutual agreement

The Bremen Regional Labor Court (LAG judgment of June 22, 2011, Case No. 2 Sa 76/10) ordered an employer to terminate the insurance policy or pension fund concluded in favor of its employee. The employee had fallen into a financial emergency, so that the employer was obliged to care and consideration, § 241 II BGB. This was a deferred compensation scheme with an employer contribution. The ruling shows that employers and employees can also cancel or terminate the occupational pension scheme by mutual agreement in any case – with retroactive effect from the beginning.


Unilateral settlement right of the employer

The German Company Pensions Act (BetrAVG) contains in Section 8 para. 2 BetrAVG and § 3 para. 2 of the German Occupational Pensions Act (BetrAVG) provides for the possibility for employers, pension guarantee associations or insolvency administrators to settle vested pension rights and current benefits if they fall below certain value thresholds (1% of the monthly reference amount pursuant to Section 18 of the German Social Security Code (SGB IV); in the case of lump-sum benefits, 12/10 of this reference amount; i.e. EUR 26.25 in western Germany in 2012 and EUR 22.40 in eastern Germany with regard to pensions and 12/10 with regard to lump-sum benefits).


Unilateral right of the employee to rescind the contract

Time and again, employees find that the promise of an occupational pension is higher than the actual value of their pension. Sometimes the sponsors of occupational pension schemes fail to inform the employer annually of the pension values achieved, so that the employers concerned are also unable to inform their employees. At the latest when leaving the company, employees will discover that only a fraction of the premiums paid in is still available – the missing remainder was then used for acquisition or sales costs. In this case, the employee can take the view, particularly in the case of salary conversion, that the occupational pension commitment is null and void (LAG Munich, judgment of 15 March 2007, Case No. 4 Sa 1152/06) and therefore demand reversal.


Social security obligation?

In the case of an already terminated employment relationship with vesting and a benefit in accordance with the BetrAVG, also as a severance payment, there is regularly remuneration subject to social insurance contributions or a pension payment in accordance with § 229 SGB V. The Federal Social Court (BSG, judgement of 25.04.2012, ref. B 21 KR 26/10 R) considers any settlement of an occupational pension commitment prior to the occurrence of the insured event to be subject to social security contributions.


In the case of a severance payment during an existing employment relationship, it may not be a pension payment (with the 10-year burden of social security), but rather remuneration for the current year. This has the advantage that it is only subject to social insurance (SV) together with current wages up to the income threshold, possibly not at all in the case of higher earners. From a tax point of view, the so-called one-fifth rule may come into question, §§ 19, 34 of the German Income Tax Act (EStG).


A severance payment would not be a “real” severance payment, and thus – within the limits of the contribution assessment thresholds – fully subject to social insurance contributions, if the employment relationship continues (i.e. not as an occupational pension benefit), for example if it is paid for the loss of the previous higher-ranking job (BSG, judgements of 28.01.1999, ref. B 12 KR 14/98 R and B 12 KR 6/98 R). Social security exempt and tax privileged according to § 3 No.9 EStG are initially only severance payments that are paid for the period after the end of employment, i.e. in particular on termination of the employment relationship.


It is important to distinguish between settlement of a commitment and payment due to a hardship, because different consequences are associated with this. In particular, the latter is even often cheaper. However, it would also be more favourable if, for example, it were simply made clear (without emergency) that the dissolution amount serves to finance the bridging until the start of the pension, because it is not a retirement provision even then. Or to finance a professional reorientation, as a start-up aid for self-employment, or as a basis for financing emigration. Everything also without emergency, on both sides voluntarily, absolutely also due to a clear waving of the employer.


Optimisation – up to exemption from social security

If the occupational pension commitment is terminated retroactively, this is not a pension payment (also severance payment) for the past, but an additional payment of remuneration from the past. The subsequent payment of the originally converted remuneration is no longer a pension benefit, but a one-off subsequent wage payment for past periods (regardless of whether the employment relationship was terminated or continues).

Such one-off payments are generally attributed to the individual month of payment for contribution purposes, § 23a III SGB IV. The pro rata contribution assessment limits therefore apply, so that only part of the payment up to the contribution assessment limit (BBG) is charged with social contributions. The vast majority of this amount is not subject to SI contributions.

Pension payments (pension) and thus already earned income is avoided precisely if it is not a settlement for the pension entitlements acquired from deferred compensation, but rather the deferred compensation is reversed from the beginning. This is precisely the essential difference.


This shows that no SI contribution is deducted at all if there was no employment relationship with the old employer in the year of payment, and that the March clause is used if there was an employment relationship in the previous year.

Further mitigations may occur if there were partly no periods subject to contributions in the year in question until payment, e.g. due to receipt of sickness benefit.

You can minimise or avoid the obligation to pay SI, for example, by not paying until April or later. In this case, you will only be liable to pay SI if you continue to work for the same employer at the BBG rate for the month in question, and only the amount exceeding the current monthly wage up to the BBG rate will be subject to SI. Other optimisation approaches are also conceivable, e.g. payment in a month in which variable components are also paid out, by which the pro rata BBG is already exceeded by then.


It is also possible that the payment could be interpreted as a retroactive pay increase. However, this does not lead to a different result if it is structured correctly, because this can also be treated as a one-off payment and also allocated to the month of payment, for reasons of simplification:

Thus, by paying out the deferred compensation capital due to retroactive termination of deferred compensation, it is actually possible to save all or most of the social security contributions that would otherwise be due in the event of termination of the occupational pension scheme.


No pension rights adjustment when exercising a lump-sum option or occupational pension settlement

The Federal Court of Justice (BGH, judgement of 18.04.2012, Ref. XII ZB 325/11) has ruled that a private pension insurance policy pursuant to section 2 para. 2 No. 3 Versorgungsausgleichsgesetz (VersAusglG – German Pension Equalisation Act) is not subject to pension equalisation even if the lump-sum option is exercised after the end of the marriage period, i.e. when the divorce is filed.


This would apply accordingly if the deferred compensation were to be reversed after the end of the marriage, since it would then not be a lump-sum settlement under the occupational pension scheme, which would otherwise be subject to the pension rights adjustment.

This also applies analogously to Riester: the lump-sum payment of the pension (up to 30 % of the capital) would fall under the pension equalisation, but the payment in the event of termination (which is permissible) would not.


by Dr. Johannes Fiala

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Über den Autor

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala ist seit mehr als 25 Jahren als Jurist und Rechts­anwalt mit eigener Kanzlei in München tätig. Er beschäftigt sich unter anderem intensiv mit den Themen Immobilien­wirtschaft, Finanz­recht sowie Steuer- und Versicherungs­recht. Die zahl­reichen Stationen seines beruf­lichen Werde­gangs ermöglichen es ihm, für seine Mandanten ganz­heitlich beratend und im Streit­fall juristisch tätig zu werden.
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