Germany – News on Employee Benefits
by Alexander Beard, on Nov 21, 2017 4:34:53 PM
Readers’ of Alexander Beard News already had been informed recently that Germany has launched a new law to stabilize Employee Benefits and to encourage SME’s to implement new schemes. The “Betriebsrentenstärkungsgesetz” BRSG.
One of the main pillars of the BRSG is the introduction of defined contribution schemes in Germany for the first time, if they are agreed to and run with the involvement of the trade unions. This may be the case for huge companies however SME’s will stick to the existing vehicles.
For implementing new schemes “Direct Insurance” is the most offered vehicle- in 2018 up to € 6,240 p.a. as highest possible contribution rate. However many industrial companies or companies in the building industries still have loaded their balance sheets with “pension promises”.
The Pensionsfonds vehicle, Germany’s answer to the Anglo-Saxon pension fund, was introduced in 2002 and designed to be attractive to companies financing direct promise (Direktzusage) pensions via book reserves. This on-balance sheet funding is still the prevalent method of financing corporate pensions in Germany. Companies with pension promises on their balance sheets will look after solutions to reducing this burden.
According to the latest statistics, in 2015 Direktzusage pensions accounted for 50.5% of occupational pension commitments in the country. Pensionskassen, an external pension financing vehicle that predated the Pensionsfonds, had the next largest share of the pie, with 26.5%, followed by direct insurance with 10.7%, support funds with 6.7% and only then Pensionsfonds, with 5.7%.
Pension liabilities have the risk that due to falling interest rates the lack between balance sheet and linked securities (investments) is falling apart. Pensionsfonds- solutions can reduce or eliminate related accounting or tax burdens as a result.
Direct insurance is the vehicle with lowest admin burden for all employers and high efficiency for the employees. As German society is fast ageing the need for additional pension is getting more and more important – so does the evaluation of employee benefit pensions in the view of employees.
Let’s talk - Ruediger.Blaich@abg-de.net
Country Manager - Germany (AB International Benefits B.V.)