How the new law on the strengthening of company pensions is driving out the desire of employees for popular harmful guarantees.
On 1 June 2017, the German Bundestag passed the new Company Pension Strengthening Act (BRStärkungsG) (ep reported). The official aim is to promote the spread of occupational pension schemes (bAV) in small businesses and to protect low earners from poverty in old age.
However, this measure does not achieve this objective. From 2030, up to more than 50 percent of new pensioners will have a legal claim to basic income support. The poverty of the population in old age has apparently been on the political agenda for more than 30 years?
Justice for all?
A documentary (“Das Rentendebakel”, ZDFzoom, broadcast on 16 November 2016) currently puts the loss of purchasing power of the state pension at 30 percent since the turn of the millennium.
For the year 2013, the average pension for men in Germany is described as EUR 1,050 and in Austria as EUR 1,820. For women in Germany, the figure is 590 euros in Germany and 1,220 euros in Austria. And for the year 2015, according to the OECD, people in Austria will receive an average of 78 per cent of their gross pension, in Germany an average of 37 per cent.
Anyone who compares the current net pension ratios for the same income with 1982 will see that the nominal net pension was halved after deduction of taxes and social insurance. The other day a bartender in Prague asked a tourist the same question: “Why do you Germans always elect governments that decide against the people?
Old age poverty for the majority?
Before Schröder & Co., precarious work was perhaps less than 10 percent – according to his agenda it was probably around 25 percent, and today it seems that 35 percent of the working population is already affected.
People who live from hand to mouth – currently more than 25 percent of the population – do not have a savings rate, even though the new law does not count 100 euros or a little more (currently a good 200 euros at most) of occupational pension provision towards the basic provision in future. The percentage state subsidy for bAV with a zero savings rate is also zero.
The Riester pension, for example, is an event for high earners with up to more than ten years longer life expectancy than in the precarious sector, and with potentially more massive tax savings.
Company pension scheme as a casino?
The new model of the Nahles pension forbids any kind of guarantee. As a result, the previous liability due to the employer’s (AG) obligation to assume liability through its occupational pension commitment will inevitably also be eliminated. The insolvency of the AG thus remains without effect – there is therefore no longer any protection through the Pension Security Association.
There is now only one contribution obligation – albeit at the expense of the employee’s (AN) wage conversion, i.e. ultimately paid by the employee – voluntarily. The employer decides who invests the money, with the participation of the social partners, but the investment risk is borne by the employee. If the AG offers this in this way, any claim to other forms of occupational pension schemes with guarantees shall lapse.
Nowhere is there a regulation according to which the employees receive a fair share of the investment success – in case of doubt, returns are eaten up by fees.
Hidden reserves can be withheld – in addition, collective security funds should be set up for future very bad times, which do not increase individual claims, because that is exactly when the money was destroyed anyway. Ultimately, contributions and investment income or losses are therefore allocated according to the landlord’s way, to whomever, sooner or even much later, after the savers have long since died.
Even after the start of the pension, it can still be reduced, because the employee bears the risk of forfeiture of the capital investments until the end of his life.
The risk of the capital investment is borne by the employees, who, however, have nothing to contribute themselves – in fact, perhaps an unconstitutional contract at the expense of third parties, i.e. the contractor. Does the legislator create new work for established judges, also in labour law?
Of course, there will be numerous financial intermediaries who will advise you to exchange the existing occupational pension scheme with guarantees for a new one – this option has been provided for by the legislator. Thus guarantees are replaced by speculation. If the client does not inform correctly, he will probably still be liable for the damage to the contractor, even without guarantees.
Frequent consulting errors in the bAV placement?
Those who work receive a wage for it – if desired, a part later, for example as a company pension scheme (bAV). The occupational pension scheme is therefore not a tax-saving model, but a time-based tax shifting model for the employee. Up to now, the AG has certainly saved his share (around 20 percent) in the social security system of the occupational pension scheme – later, the employee as a pensioner pays up to more than 18 percent to the statutory health and nursing care insurance (alone).
The Nahles pension reduces the AG’s savings to around five percent because the remainder is to be paid by the AG as an additional contribution. But this does not change the fact that the occupational pension scheme reduces the entitlement to sickness benefit, unemployment benefit and the statutory old-age pension by means of occupational pension contributions – an issue that intermediaries like to ignore. The impression is that this is a conditionally intentional damage to the employees; and this without works councils intervening more frequently.
Another error in advice is that it would often be better to do without the occupational pension scheme, to tax the salary in full and then find a private investment for old age – because only then can social security contributions be avoided and taxes minimised.
Then, in old age, when one will be dependent on every cent, avoidable tax burdens are undesirable – not only in the case of mass poverty in old age. It is to be expected, however, that more and more pensioners will become debtors with the tax office and health insurance companies for the rest of their lives, as is increasingly the case in Switzerland today.
If you have the alternative of paying the rent or not sitting in the cold and having a schnitzel on your plate, but owe the tax office something, it is foreseeable what the decision will be.
Few are prepared to pay only rent and taxes so that they can at least live debt-free between their four walls and do not have to starve on the streets. In Japan, many pensioners commit petty thefts in order to spend the winter in prison – but many shop assistants simply overlook this.
Severance pay for company pension schemes as the ideal solution?
Large and very large corporations have promised their employees a pension scheme – but do not have all the money to finance it.
Small and very small businesses are liable for the fact that the contractual commitment has been much higher than a bank or insurance company has ever generated.
One way out of this conflict situation in the future is the current severance pay – and this is available in taxes and social security as the current tax-saving model. Clever design also avoids the legal double payment.
Recently, another master craftsman lost his personal (company) pension completely – because he did not have an overview of the financial content of his employment contract commitment?
Social partner model without social partners?
The employer’s pure contribution commitment (pay and forget) means that the employer is at the mercy of any social partners and their assistants when investing capital – in case of doubt without cost transparency.
Anyone who is serious about the social concept of the occupational pension scheme can also organise this themselves – for example through their own support fund or foundation, which then provides a desired guarantee instead of the employer, without any employer liability whatsoever.
But then it is up to the employer himself to decide who manages the money and when vesting occurs, because the rules of the BetrAVG do not apply to this and no one can make rules about it. The Nahles pension prohibits the guarantee precisely because every employee would otherwise have wanted it.
It often makes sense to move away completely from the legislative temptation to provide minimal support. Foreign collective investment schemes (e.g. funds) may also be considered as investment managers. Nobody is forced to invest his or her money or that of the employees here in Germany with negative returns after costs and inflation.
Strategically, employers could offer the Nahles pension to discourage their employees completely from a statutory occupational pension, as if he were inviting them to the next company party in an English restaurant: No thanks, I feel sick already. With the appropriate education, he can then, before they even experience the smell of fish, chips and mutton, offer them something completely different, to everyone’s advantage.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.elektropraktiker.de (published on 06.06.2017)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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