Under the dual leadership of the Federal Ministry of Labor and Social Affairs (BMAS) and the Federal Ministry of Finance (BMF), the status quo of pension provision in Germany was first intensively analyzed and optimization options assessed before the reform project to strengthen occupational pension provision and improve the Riester pension was finally pushed forward last year. Even as the project becomes increasingly concrete, the innovations continue to be the subject of controversial discussions among politicians, social welfare associations, interest groups and experts, and continue to arouse the interest of the public. This is certainly not least in view of the continued awareness of the economic implications of occupational pensions, which are becoming virulent especially in the low-interest phase.
1 Pay-and-forget and opting-out – what are the main contents of the reform in terms of labor law?
(1) A major innovation of the draft law from the perspective of labor law is that the social partners are now to be able to introduce pure defined contribution plans on the basis of collective agreements. In Section 1 (2) of the German Occupational Pensions Act (BetrAVG), the following provision is inserted as a new number 2a:
“(Occupational pension provision also exists if) (…) the employer is obligated by collective bargaining agreement or on the basis of a collective bargaining agreement in a works or service agreement to pay contributions to a pension fund, a Pensionskasse or a direct insurance company to finance occupational pension benefits; the obligation of the employer to make contributions pursuant to subsection 1 sentence 3 does not exist (pure contribution commitment).”
“Pay and forget” – The intent is to deliberately provide relief to employers who are outside the new form of commitment under Sec. 1 para. 1 sentence 3 of the German Occupational Pensions Act (BetrAVG): In the case of direct commitments as well as indirect commitments via an external implementation channel, the employer is (otherwise) always liable for providing the guaranteed pension benefits. According to the case law of the German Federal Labor Court (BAG), this so-called “procurement claim”, which exists for all external implementation channels (direct insurance, pension fund, pension fund and provident fund), includes a direct claim for performance of the pension beneficiary against the employer if the external pension provider is unable to provide the benefits specified in the pension commitment, regardless of the reasons. We discussed the procurement claim in detail in our Pensions Update 06/2016 .
The counterpart to the performance guarantee is the pure contribution guarantee, which according to the case law of the BAG (cf. BAG ruling dated March 15, 2016, 3 AZR 829/14) is already permissible under labor law even outside the reform project, although it has not (yet) become widespread in Germany. Due to the lack of a promise of performance within the meaning of Sec. 1 para. 1 sentence 1 BetrAVG, the “pure defined contribution plan” is not subject to the provisions of the German Occupational Pensions Act (cf. BAG ruling dated March 15, 2016, 3 AZR 829/14).
It should now be possible to change this for employers who are bound by collective agreements as well as for employers who are not bound by collective agreements by means of collectively agreed systems. Employers not bound by collective bargaining agreements can make the collective bargaining system applicable to the individual employee by means of a reference clause in the employment contract to the relevant collective bargaining regulations.
New supervisory regulations are intended to ensure monitoring via BaFin; in other respects, it is up to the social partners to design and implement an efficient system in accordance with the requirements of sections 21 to 25 of the German Occupational Pensions Act (BetrAVG n.F.).
(2) Furthermore, a general clause opening up collective bargaining is to be codified in a new section of the BetrAVG entitled “Company pension schemes and collective bargaining” (Section 19 BetrAVG n.F.) and collectively agreed models of automatic deferred compensation are to be introduced here. The draft legislation attaches a number of conditions to these option systems: In general, all employees participate in the agreed compensation conversion program unless they explicitly object to this within a set (minimum) period after being informed accordingly (“optout”). § Section 20 of the German Occupational Pensions Act (BetrAVG), as amended, reads in part:
“(1) Insofar as remuneration claims are based on a collective agreement, remuneration conversion may only be carried out for these insofar as this is provided for by collective agreement or permitted by collective agreement. (2) A collective bargaining agreement may provide that the employer shall introduce automatic deferred compensation for all employees or a group of employees of the enterprise or individual establishments, against which the employee has a right of objection (option system).”
(3) Innovations to optimize the state subsidy for deferred compensation include: (a) Additional contributions by the employer towards low earners are to be subsidized for tax purposes in the amount of a 30% subsidy contribution for contributions of at least EUR 240 to EUR 480 p.a. by offsetting them against the wage tax to be paid by the employer (subsidy contribution thus EUR 72 to max. EUR 144 p.a.).
(b) The tax-free occupational pension provision limit is to be increased uniformly for the Pensionskasse, Pensionsfonds and direct insurance implementation channels to a total of 8% of the income threshold for pension insurance contributions (BBG-RV). The rules on lump-sum taxation (20%) remain in place; in the case of severance payments, up to 10 times the annual volume is permissible.
2. what are the accompanying changes in social law?
In order to create new incentives for low-income earners as well, voluntary supplementary pensions (occupational and Riester pensions), in particular, should be introduced. for basic security in old age or reduced earning capacity remain free of charge up to an amount of EUR 202 per calendar month. Riester pensions are to remain non-contributory in the statutory health and long-term care insurance during the retirement phase; the procedure for Riester pensions is also to be improved and the amount of the annual basic allowance is to be increased from EUR 154 to EUR 165.
3. what suggestions and criticisms does the practice make of the current draft law?
From the perspective of labor law, it is suggested that the defined contribution plan is not subject to an adjustment obligation pursuant to Section 16 of the German Occupational Pensions Act (BetrAVG). Another suggestion is that the opt-out system provided for in Section 20 of the German Occupational Pensions Act (BetrAVG n.F.) should not be limited to legal bases in collective agreements, but should also include provisions under collective law in a company agreement or service agreement. In its first reading, the Bundesrat also recommended that the complete ban on guarantees for direct insurance policies (still) specified in the draft should not (no longer) be pursued in the further legislative process.
In terms of social security law, there is (still) a need for change, among other things with regard to the introduction of an exemption from contributions for health and long-term care insurance, also for occupational pensions. In addition, it is suggested that subsidized occupational pensions should also be disregarded when counting income towards pensions due to death.
4. what is the further schedule?
The bill passed its first reading in the Bundestag on March 10, 2017. An expert hearing on the bill will be held on March 27, 2017. Further readings in the Bundestag are expected to take place in April 2017. The Bundesrat (upper house of the German parliament) is expected to deal with the law in its final session on June 2, 2017. The law is scheduled to take effect on January 1, 2018.
5. how do I stay informed about the BRSG?
We will keep you informed about the further status of the legislative process. We would be happy to discuss with you in a personal meeting what opportunities and risks the BRSG poses for your company in concrete terms, and we would also be happy to advise you on this further.
At this point we would like to invite you to the joint webinar of KPMG AG Wirtschaftsprüfungsgesellschaft and KPMG Rechtsanwaltsgesellschaft mbH to share more information with us:
Company pension scheme – What’s new, what’s changing?
Webinar on the BRSG and current case law
21 March 2017, 10:00 to 11:00 h
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