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State pensions and mandatory schemes

Contributions Do employers and/or employees make pension contributions to the government in your jurisdiction? If so, briefly outline the existing state pension system.

Statutory pension insurance is based on the concept of a ‘contract between the generations’, under which contributors finance the pensions of existing pensioners on a pay-as-you-go basis. Persons subject to statutory pension insurance are primarily dependent employees.

Contributions to statutory pension insurance are borne by the employer and employee together and are calculated on the basis of employee remuneration. An employee’s remuneration that exceeds the applicable contribution ceiling will not be considered when calculating contributions to statutory pension insurance. The contribution ceiling amounts are:

  • €6,350 per month for former West Germany; and
  • €5,700 per month for former East Germany.

Pension contributions amount to 18.7% of the employee’s remuneration and are limited by the contribution ceiling, of which employers and employees each bear 9.35%. The size of contributions and the contribution ceiling are revised annually. The figures above reflect the legal situation in 2017.

At present, the statutory pension age is 67. However, there are also lower age thresholds for persons who are disabled or who have been insured for a long time. 

Can employers deduct any state pension contributions from their taxable income?

Employers can deduct state pension contributions for tax purposes. These contributions constitute part of salary expenses.

Are there any proposals to reform or amend the existing system?

At present, the pension entitlements in former East Germany are below those in former West Germany. Pension entitlements will be incrementally adjusted from July 2018. By July 2024, pension entitlements in former East Germany will be equal to those in former West Germany. This will also affect the applicable contribution ceiling, which will be adjusted in seven steps.

Since the statutory pension system is vulnerable to the negative demographic developments in Germany, there are continuous discussions on how to address this problem (eg, increasing the statutory pension age). 

Other mandatory schemes Are employers required to arrange or contribute to supplementary pension schemes for employees? If so, briefly outline how the scheme is enforced and regulated.

In general, employers are not required to arrange or contribute to supplementary pension schemes. However, there is one exemption: pursuant to Section 1(a) of the Act for the Improvement of Company Pension Plans, employees may claim that up to 4% of the applicable statutory pension insurance contribution ceiling will be used as deferred compensation. An employer may decide whether the deferred compensation will be paid to a pension or staff pension fund or an employee may request that the employer take out direct insurance. The employee must use at least 1/160 of the reference figure pursuant to Section 18(1) of the Social Security Code IV for deferred compensation in each calendar year. For 2017, the reference figure pursuant to Section 18(1) is €35,700 per year. However, an employee cannot bring forward his or her claim if there is already a company pension scheme in place which is based on deferred compensation.

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