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27 January 2017

Germany: A bill to extend company pension coverage

On 21 December 2016, the Federal Government approved reforms to company pension schemes in order to increase the number of employees entitled to coverage.

The legislative bill  makes it easier for small and medium-sized enterprises to set up a company pension scheme, and provides a fiscal incentive for employees on low salaries to contribute to a scheme of this kind (see the press release). The aim is to boost the number of people covered by these schemes, thought at present to be 57% of employees, in order to make up for the fall in replacement income, which, under the Government’s pension reforms (see the previous news item), will drop to 46% of net income from the current level of 48%. The bill seeks to encourage SMEs to set up schemes of this kind through industry-wide collective agreements. Nevertheless, several provisions are concerned with relaxing the constraints and obligations on employers in order to induce them to offer a company pension scheme to their employees. Accordingly, employers will no longer have to commit to paying a fixed amount, as is currently the case, but merely to a contribution level, while complying with the ‘pension objectives’ set by the industry’s social partners. The bill provides tax incentives for both the employers contributing to these schemes and employees with gross monthly earnings of less than EUR 2 000. Furthermore, payments made by these low-wage employees to the company pension scheme will be exempt from tax. While there is support for the plan to widen company pension scheme coverage, which, as the Confederation of German Trade Unions (DGB) points out, is insufficient and has remained stagnant for several years, trade union organisations have nevertheless been critical on a number of points (see the position adopted by the DGB), in particular the IG Metall union (see Die Welt, 18 January 2017), which hopes to influence the parliamentary debate with a view to improving the bill.

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