Company pension scheme: In the case of design errors, it can come to a social case Management consultancies for a company pension scheme advertise a pension commitment check according to the following model, for example: “We would be happy to take over the professional examination of pension commitments for you. In doing so, we also ensure that common deficiencies that occur in practice are also identified.” The practice requires however more than many standard questions, rather individual case examination of files is announced. Here are a few examples from practice:
Application for social assistance after pension check: A client runs a small limited liability company – a shareholder-managing director and his wife are employed with a pension commitment. Other employees and the cooperating subsidiary have no pension commitments. The business consultant will have the broker submit the documents for review. The management consultant, the intermediary and also the customer think everything is fine. Unfortunately, a mistake.
When the client falls into insolvency, it turns out that there are numerous pension commitments and pledges, but unfortunately these are contradictory and incomplete – and the 30 or so reinsurance policies have already been partially terminated. The client noticed that the management consultant had unfortunately only received part of the files from the tax consultant for examination. Without a pension, the shareholder-manager may become a social case.
Litigation financier: The customer cannot enforce a pension with the insolvent GmbH. Several litigation funders readily agree to provide litigation funding. Especially after neither the management consultant nor the tax advisor, according to information from the local district court president, have a permit under the Legal Advice Act. The intermediary “hired” by the management consultant is horrified – he, too, should be liable, although he had only filled out the questionnaire and discussed the result with the client: no wonder, because after all he had received part of the remuneration and had taken advantage of the client’s personal trust – after all, it is better to sell as an expert for occupational pension schemes.
No less problematic is the pension commitment in the event of the sale of a company and anticipated succession. If the purchaser of the company later makes deficiencies known or there is a dispute in the family with the heirs, the shareholder-managing director together with his partner will be at the mercy of “his former” GmbH with regard to the pension commitment. If a dispute arises, the GmbH simply freezes the pension payments. Now the shareholder-manager gets the idea of asserting his lien. But again nothing will come of it: The insurer will hardly interfere in the dispute with the GmbH, and simply deposit at the district court – shareholder-managing director and GmbH can then argue in peace, and that can take time.
Incidentally, insurers behave in a similar way when there is a dispute between the shareholder-manager and the insolvency administrator. Lawsuits to the “highest court”, i.e. the last instance, can take a long time – 10 years of proceedings can be constitutional. The practitioner calls this the “justice credit.”
Social security application after social security check: The customer had at that time also ordered a social security check, over the mediator with the management consultation. The expert checklists were processed and the text module appraisal led to the desired success. The shareholder-manager and his wife received substantial repayments from the statutory pension scheme – and the intermediary received a commission from the subsequent investment.
But now it turns out that the advice was incomplete – there could have been significant benefits for the couple through voluntary contributions and other design measures. If proper advice had been given, the wife could receive a full pension earlier than at 65. The shareholder-managing director could also draw a full pension after becoming disabled before the insolvency – if he had been advised correctly. Both would thus have been able to draw their pensions earlier than promised – in addition to a statutory pension – for statutory reasons (even if this is not stated in the pension commitment). The tax advisor is surprised, the broker appalled: In his financial planner training documents, he searches in vain for the intricacies of social security and the design details associated with company pension plans.
No unemployment benefit despite social security check: But it gets even better – the daughter is also affected by the insolvency, the insolvency administrator gives her notice. No problem, she thinks, and reports to the employment office. The latter replies “Thank you very much for your application, which we hereby reject”, because she was “exempt from insurance” after examination by the employment office – after all, she does not receive any benefits but only has her contributions refunded for four years (but only on application). Also in such cases the tax adviser is liable, as the LG Cologne had already decided years ago (Az. 16 O 6/93).
The right procedure: The starting point of any design is analysis. Using checklists to have an intermediary review pension promises is akin to a patient having heart surgery performed by a nurse. Even with a doctor, treatment begins after a personal examination and consultation. This takes time, because checklists can hardly cover all conceivable cases, especially when it comes to existentially complex legal and tax issues.
Then there is the question of finances, and here above all the question of risk diversification. Intermediaries should have the customer sign off on the fact that structuring the entire old-age provision through a single implementation channel is practically a cluster risk. Who deliberately puts all their eggs in one basket?
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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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