Are voluntary retirement schemes beneficial?

Company pension scheme - legal basis and background

structure

1. story

2. Legal basis

3. Features

4. Weight of the company pension scheme

5. Advantages of company pension schemes

6. Legal background to company pension schemes
6.1 Authorized group of people
6.2 Equal treatment
6.3 vesting
6.4 Partial process
6.5 Flexible age limit
6.6 Insolvency insurance
6.7 Right to Portability
6.8 Right to deferred compensation

7. Outlook

8. Conclusion

bibliography
Web sources
literature

1. story

Company pension schemes came into being as early as the 19th century, even before the statutory pension insurance scheme came into being. These pension funds should support employees in the event of disability or old age and their families in the event of the death of the breadwinner.

The pioneers included Gutehoffnungshütte in 1832, Krupp and Henschel in 1858, Siemens in 1872, BASF in 1879 and Hoechst in 1889.

Although many companies had already expanded their company pension schemes and company pension schemes were becoming more and more important in Germany, it was not until 19.12.1974 that it was given a legal framework through the “Law for the Improvement of Company Pension Plans” (BetrAVG).

All the legal bases for company pension schemes, such as non-forfeitability, insolvency protection or portability, have been anchored in this law.

Today, the company pension scheme - alongside the statutory pension insurance - is one of the most important elements in the pension system in Germany:

Figure not included in this excerpt

Fig.1: The three-layer model[1]

2. Legal basis

The promise of a company pension is basically a voluntary promise made by an employer to the employee. The pension promise must be made on the occasion of an employment relationship.

The legal basis for safeguarding company pensions is the Act for the Improvement of Company Pension Plans (BetrAVG), also known as the “Company Pension Act”.

"If the employer promises an employee benefits from old-age, disability or survivors' benefits on the basis of his employment relationship (company pension scheme), the provisions of this law apply." (Section 1 BetrAVG).

In the course of this paper, reference is made to the BetrAVG and cited in extracts. This is intended to underline the importance of this law.

3. Features

The main features of company pension schemes are essentially limited to three approaches.

First of all, it should be mentioned that the company pension scheme is a voluntary commitment by the employer to the employee. According to the 2000/2001 pension reform, the employee is entitled to a company pension; However, this is no longer applicable if the employee leaves the company after a short period of time or has not yet reached the age of 30 when leaving the company - before the insured event occurs. (see also chapter 6.3). However, the employee has a right to deferred compensation (see Chapter 7.9).

Company pension schemes can include old-age, disability and / or survivors' benefits.

The most important feature to be addressed is that the pension commitment must be made on the basis of the employment relationship.

4. Weight of the company pension scheme

Most employees now know that in addition to the statutory pension insurance, they also have to make private provision so that they can maintain their standard of living even after retirement. Private provision can be made, for example, by taking out capital-forming life insurance policies, buying securities or investing savings.

However, many employees are of the opinion that the statutory pension and an additional life insurance policy are sufficient and that an additional pension is no longer necessary. With this attitude, however, they overlook the economic development and the changes in the price-performance ratio.

Because the following applies: "If you want to maintain your accustomed standard of living even after retirement, you have to ensure a pension that corresponds to your net income!"

I would like to use the following sample calculations that I have chosen to make it clear how large the pension gap, i.e. the shortfall between the pension to be expected due to old age and the pension target (= net income), is. Because it is often underestimated how big the gap in old age actually is if one has not made private provision.

Gross income: € 3000.00

Net income = approx. 65% of the gross: 1950.00 €

Expected pension from
the GRV = approx. 38% v. Gross: € 1140.00

Pension gap in old age: € 810.00

Gross income: € 6,000.00 net income =
approx. 65% of the gross: 3900.00 €

Expected pension from
the GRV = approx. 38% v. Gross: € 1976.00

Pension gap in old age: € 1924.00

In particular for income groups that are above the income threshold (currently € 5200.00 / west), immense pension gaps arise in old age without additional provision.

Benefits from a company pension scheme can make a significant contribution to closing a pension gap, which is particularly significant for higher incomes.

If one continues to assume the current social trends that the very low birth rate, today's longer training periods and increasing life expectancy have an impact on the amount of pensions, then the additional provision becomes even more important.

Today around two employees have to finance a pensioner with their contributions to the GRV. According to the developments just outlined, the relationship will be reversed.

5. Advantages of company pension schemes

The establishment of a company pension scheme can be seen as underlining the social responsibility of a company towards its employees. At the same time, it can secure tax advantages.

A company pension increases employee loyalty to the company and thus reduces fluctuation. Nowadays, additional social benefits are a reason for many employees to change their job. Due to the current shortage of skilled workers in the German labor market, many companies are now ready to make financial concessions in this direction.

A company pension scheme can also help employees identify better with the company. This in turn increases motivation and improves the working atmosphere. These two factors serve to increase the productivity of a company.

A company pension also increases corporate prestige. This gives the company a competitive edge when it comes to attracting qualified employees.

Finally, the company also receives tax advantages through the legislative “participation” of the state in the company pension scheme. However, I do not want to go into this further in this paper.

[...]



[1] Source: http://altersvorsorge-info.de/seiten/1_4.htm; Last accessed: November 18, 2007

End of the reading sample from 21 pages