Additional costs and liability risks for employers – principle of “internal division” distributes opportunities and risks between spouses
Until now, pension entitlements have been calculated using “error-prone forecasts” and often with “value distortions via the present value ordinance”, made comparable with statutory pension insurance entitlements and then the difference in value of all entitlements acquired by both spouses is settled via the spouses’ statutory pension insurance. In future, an “internal division” will take place, so that the spouse entitled to equalisation will receive his or her own entitlement directly to the pension of the spouse liable to equalisation. One pension entitlement becomes two on divorce and one is added on each occasion of a new marriage and a new divorce. This will mean that the spouses will be able to find out what the “value” of the private and company pension assets accumulated to date really is. Especially if there are then only “smaller values” (approx. 50 Euro monthly pension or approx. 6,000 Euro capital value), these can be settled unilaterally by the pension provider, which is called “external division”. This also applies accordingly to pension commitments/direct commitments and support funds with a capital value of up to approx. EUR 63,000 (approx. EUR 500 monthly pension). At this point, at the latest, the question arises as to the profitability, the internally charged costs and possible incorrect advice when concluding such insurance policies. If, after years of payments, there is hardly any capital left, because these have mainly just sufficed to finance the acquisition costs of the provision – which spouse should then have to bear the acquisition costs and to what extent? The dispute about the already intransparent acquisition costs between the spouses and subsequently with the employer, broker and insurer is pre-programmed.
Voluntary “external sharing” requires expert product testing
The spouses can also voluntarily agree on “external division” for higher capital values – in this case, the question arises in the individual case as to what additional costs are associated with the change of product provider or investment form. As a rule, additional or new acquisition costs or commissions are incurred when “switching”. A “petty cash adjustment” is waived if the amount is approximately 25 euros of monthly pension or approximately 3,000 euros of capital. Even in the case of a “short marriage” of up to two years, no pension equalisation takes place at all. This relieves the burden of the judicial divorce proceedings.
No cost neutrality: employers and employees are burdened with additional costs.
The providers of private and occupational pensions, i.e. banks and insurance companies, as well as support funds, pension funds etc. cooperating with them, can pass on their “costs” of internal division to the spouses. In effect, therefore, the pension scheme will be burdened with additional costs in the event of divorce. An actuarial appraisal may well cost 1,500 euros or more per pension, so if there are several pensions per spouse with different employers, additional divorce costs of 5,000 to 10,000 euros can easily be incurred together with lawyers’ and court costs. The new law, on the other hand, does not provide for compensation for the employer’s costs: After all, he is the client/investor in the occupational pension scheme. In the case of divorce with “internal and external division” of the provision, the employer will have additional administrative costs, for legal advice and actuarial appraisal.
Liability, costs and complexity remain with the employer
The legal obligation to convert remuneration since 2002 is not popular with every employer. Liability for a “value equivalent” entitlement means that the employer bears in particular the risk of poor investments, excessive costs, low profitability, but also the insolvency of the “sponsor” of the occupational pension scheme selected by him. Additional costs and complexity, as well as occasional liability judgments, push some HR departments to the limit – and beyond. The inclusion of all employers with occupational pension schemes in the pension equalisation procedure means new fields of activity for mathematicians and lawyers and further costs for spouses and employers, due to _ Determination of the marital equalisation value _ Compulsory obligation of the employer to independently provide for the divorced person from outside the company (equalisation recipient instead of employee) _ Increase in the number of pension claimants and pensioners _ Additional costs, Additional costs (setting up, organizing, maintaining two pension schemes) _ Premature outflow of capital in the case of external real division _ Increase in complexity in the pension schemes themselves _ Additional liability risks _ Statutory involvement of the pension providers in the proceedings
Acquisition costs, fees, Zillmerisation, provisio – ns and negative returns
In the wake of divorce and division of pension rights, many a spouse will wonder why only a fraction of the contributions they paid in are there. With more than one in three marriages divorcing, employers can be sure that they will be asked some interesting questions. A system, as with the fortune-effective achievements, where the employer passes only money on, and it is thing of the coworker to be well advised, did not introduce the legislator 2002 straight. On the contrary, since then employers have been increasingly liable in the area of deferred compensation – with risks that are difficult to bear. Originally, they had set out to offer deferred compensation, e.g. through private pension insurance or congruently reinsured support funds, without any significant administrative expense of their own and with the costs being borne by the employee’s deferred compensation. This is how the insurers and initiators made it palatable to the employer. Now it turns out that this calculation does not work out, because the legislator burdens these pension plans with additional costs and administrative expenses. For the employee, a divorce can easily wipe out the return on his or her pension – the price of equitable division of the pension between the spouses is the burden of substantial division costs and even negative returns on the pension. Dr. Johannes Fiala, lawyer (Munich); Dipl.-Math. Peter A. Schramm, actuarial expert (Diethardt),
(dmz 13/2008, 42)
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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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