A position as initiator, managing director or shareholder is not required
*by Dr. Johannes Fiala, lawyer (Munich), mediator (Univ.), MBA Financial Services (Univ. Wales), MM (Univ.), certified financial and investment advisor (A.F.A.), lecturer for civil and insurance law (BA Heidenheim, Univ. of Cooperative Education), banker (www.fiala.de) and Dipl.- Math.Math. Peter A. Schramm, expert for actuarial mathematics (Diethardt), actuary DAV, publicly appointed and sworn by the IHK Frankfurt am Main for actuarial mathematics in private health insurance (www.pkvgutachter. de).
Capital life insurances are completely seizable despite pension choice right
The Federal Fiscal Court (Bundesfinanzhof, BFH) decided in its ruling of 31.07.2007 (Ref. VII R 60/06) that an endowment life insurance policy is fully attachable despite the right to choose an annuity. After garnishment, a pension option to obtain garnishment protection can also no longer be exercised.
Risky design also for annuity insurance with lump-sum option
For many years, it was safer to choose an annuity policy with a lump-sum option right from the outset, i.e. the “reverse” design, because the lump-sum option right was regarded as a highly personal right (not subject to attachment). Thus also still with judgement of 07.11.2000 (1 K 168/99) the tax court of the Saarland had judged. The seizure of the lump-sum settlement then came to nothing if the debtor did not exercise his right to the lump-sum settlement (of course!) and thus the insured pension remained. Another prerequisite: no surrender value could be agreed in the annuity insurance, only the conversion into a non-contributory annuity. The “trick” of at least keeping the lump-sum settlement option open against seizure now seems to be over, because the BFH is of the opinion that option rights are apparently generally not highly personal – consequently the option right is transferred to the pledgee, just as the possible right of termination and the right to the surrender value have been up to now.
Manager liability regularly leads to the loss of retirement benefits
Managing directors and board members have a variety of duties; in particular, they are liable for social security contributions and taxes in arrears. In the case at hand, this was also the reason why the tax authorities had attached an endowment life insurance policy of the former managing director.
Reinsurance of a pension commitment may also be affected
The Federal Court of Justice (BGH) ruled some time ago that the reinsurance policy can also be terminated and withdrawn by the insolvency administrator. The alleged “insolvency-proof pledge to the managing director” turned out to be a legal error. After recovery, the insolvency administrator may set off claims for damages arising from manager liability. However, it is also conceivable, as already decided by the LG Erfurt, that the insolvency administrator first sues the former managing director and then seizes the reinsurance of the pension commitment.
Managing partners are left empty-handed
In addition, the alleged “de facto insolvency protection” also regularly turns out to be wishful thinking on the part of intermediaries and advisors in the case of other ways of implementing occupational pension schemes (e.g. pension funds, provident funds, direct insurance). This is because manager liability can arise precisely because the company pension scheme is not “fully funded” – above all, from an economic point of view (not according to the tax balance sheet), precisely because this has pre-programmed an unrecognised over-indebtedness from a financial mathematical point of view.
Modest seizure-proof old-age pension for the self-employed
The amount of the recently legally garnishable pension capital according to § 851 c ZPO is limited depending on the age of the beneficiary: For example, an 18-year-old can invest €2,000 per year in a life insurance policy without garnishment, while a 60-year-old can invest €7,000. Into the seizing protection pensions from tax-promoted age precaution fortune are to be included, describe the judicially certified insurance consultant Alfred Jani (www-vb-jani.de)
Solution through capital flight for the middle class?
In Germany, further insolvency protection solutions are offered to business managers, such as a fiduciary or a double fiduciary. Practice shows, however, that even these models will regularly hardly “keep” what they promise. Only the choice of a foreign legal system as the contractual basis can offer effective protection – but if there is already over-indebtedness, this path is often blocked and the only option is restructuring (including of the occupational pension scheme).
Private pension provision also affected
However, not only the pension provision of former managing directors is affected, but also any other private pension provision. In addition to pensions (where applicable by law or on application with exemption from seizure), according to the new BFH ruling any lump-sum settlement can also be seized, even if it is only agreed as an option, and this applies to any life insurance or pension insurance contract that includes such an option.
Guaranteed ducks at risk
So-called guaranteed annuities are popular, which are paid until the end of the guarantee period (e.g. for 10 or 15 years) even in the event of death during the guarantee period. Depending on the insurance conditions, the option is offered to choose a lump-sum settlement instead of the remaining guaranteed annuity at any time. According to the BFH ruling, this can then be seized – the insured person will then only see a further lifelong pension payment after the guarantee period has expired.
Survivors’ pensions at risk
If the insured person dies, a “widow’s pension” is often agreed, e.g. in the amount of 60 %. It is not uncommon for the terms to give the widow the option to choose a lump sum settlement instead. This can now be seized immediately after the BFH ruling – the widow then receives nothing at all. The intermediary would have done better to offer the future widow her own pension plan.
“Pensions” from payout plans usually attachable without limit
If a supposedly higher-yielding payout plan is used for old-age provision instead of an annuity insurance – e.g. with fund investments – this is not only attachable like earned income. The claim to the future payouts can be attached in its entirety and realised immediately if the payout plan cannot be terminated anyway and the entire capital deposited can be attached immediately. Payment plans under the Retirement Savings Certification Act are an exception under section 851(d) of the Code of Civil Procedure. However, here too – and also in the case of other certified old-age provision contracts – a legally permissible optional partial disbursement of the pension capital would be fully attachable according to the ruling of the BFH.
Liability of the intermediary for incorrect advice
The intermediary may be liable for incorrect advice on old-age provision which did not take sufficient account of the attachment security or even provided incorrect information in this respect. However, the customer should be careful not to receive a one-off compensation amount from this instead of the current pension, as this could also be seized immediately under certain circumstances. However, the intermediary is also liable if he places the attachment security in the foreground and the corresponding contracts therefore later turn out not to be “marketable”, in particular cannot serve as collateral for loans: namely for the resulting damage, e.g. from higher loan interest rates demanded.
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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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