Emergency exit in the event of a change of employer as a solution

Many employees with formerly flat-rate taxed direct insurances (DV) are annoyed that social security contributions are due again afterwards on the payment of their additional old-age pension. The new case law – see also the article on page 24 – should be intensively examined for new possibilities of avoidance. Red.

As is well known, since 2004 the legislator had imposed a cut of around 16 percent in the amount of DP expected from employees. The good news came from the Landessozialgericht (LSG) Hessen. There, the judges showed how the undesired contributions could be avoided on the occasion of leaving the employer (judgement of 18 November 2010, Ref.: L 1 KR 76/10).

Incorrectly designed private continuation of a DP

Some employees have even continued their direct insurance privately, and with a bit of bad luck the former employer has remained the policyholder: In this frequent case of a design error, this tax is even due again on the money paid in privately and previously already fully burdened with social security contributions when it is paid out. This double burden with health insurance contributions is often overlooked on the occasion of leaving an employment relationship as a liability trap with the employee also by the advisors too gladly.

Continuation without contributions brings double burden

Other employees let the contract for their DP continue non-contributory, so that even then full social security contributions are due on it at the end. The prerequisite for this is that the payment is deemed to be intended for retirement provision.

Way out: bridging instead of retirement provision

The new ruling of the LSG Hessen now opens up an elegant way out: to have the actuarial reserve (simply meaning the surrender value including the surpluses) paid out when leaving the previous employer for another reason, namely for the loss of the job, for example as a bridging measure, in any case never as old-age provision. Then the former employee saves the double social security contributions. Compared to this early payout, the continuation of a direct insurance until the start of the pension with the additional deduction of social security contributions hardly pays off.

This case law is not applicable to pure deferred compensation. However, before a direct insurance policy can be taken out on leaving the company
– Contributory or non-contributory
– at the expense of later
social security contributions is continued, it would always have to be examined whether the prior payment on the occasion of the departure would be the better solution.

Especially for older employees who leave the company prematurely and for whom the direct insurance would only have run for a few more years, the timely payout as a bridging measure is usually the better option.
be.

Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

www.kreditwesen.de (published in Vermögen & Steuern 07/2011, page 25)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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