Direct Insurance Becomes A Company Pension. A frequently used option for company pension schemes is direct insurance in the form of deferred compensation that your employer takes out for you. As an employee, you even have a statutory right to this. The insurance is then endowed with your partial waiver of salary payments and, if necessary, with employer subsidies. The capital saved in this way is then later “retired” and paid out as a company pension.
In the savings phase, the contributions are exempt from tax and social security contributions within certain limits. The limits are set anew every year. This year, for example, you can save up to 520 euros tax-free and 260 euros tax-free per month. That means an advantage that should not be underestimated. There is, however, a “horse’s foot”. Your later company pensions are subject to tax and social security contributions. That means: a good part of the tax and social security contributions will ultimately only be postponed into the future. Nevertheless, this form of a company pension scheme can be worthwhile, but it doesn’t have to be.
One-fifth of the company pension for health and long-term care insurance
Often the personal tax rate is significantly lower in old age than during active working life. This is not only ensured by the retirement benefit – in 2018 it was 19.2 percent of the relevant income, a maximum of 912 euros. As a rule, the taxable income in retirement is also significantly lower. In this constellation, the tax progression has an exceptionally positive effect – because it works in the opposite direction. The tax burden decreases disproportionately in relation to the taxable income.
The effects on social security contributions are mixed. When the company pensions are paid out, there are no longer any pension and unemployment insurance contributions. That goes without saying. The contributions saved during working life through deferred compensation are therefore saved permanently. In contrast, contributions to statutory health and long-term care insurance are still to be paid. In the case of company pensions, these are even due in full; there is no employer contribution and – unlike the statutory pension – the pension insurance does not cover any portion.
This represents a considerable burden. With a general contribution rate of 14.6 percent, an average additional contribution of one percent and a contribution to long-term care insurance of 2.55 percent, this means a total of 18.15 percent. In individual cases – with higher additional contributions – the burden can even be higher. That means: almost a fifth of the company pension is eaten up by contributions to health and long-term care insurance. That is a major shortcoming.
Health and nursing care insurance does not always have a burdensome effect
Only retirees whose company pension (2018) is less than 152.25 euros per month are “spared”. Only from this amount – adjusted annually – (1/20 of the relevant reference value) does the obligation to pay to apply. After all, there is reason to hope for those receiving higher company pensions. After the SPD and the Left have long been campaigning for a halving of contributions, the Union’s social politicians are now campaigning for relief for company pensioners in health and long-term care insurance. Perhaps a corresponding reform will succeed in this legislative period.
If you have private health insurance (PKV), a company pension paid in addition to your statutory pension has no effect on your contributions. Because in private health insurance, the contributions are generally levied independently of income. Only the insured risk counts here.
When does the company pension pay off?
One more “downer” should be mentioned in connection with social contributions. As nice as it is to be able to save on social security during your working life, lower contributions to the statutory pension insurance at work also mean a lower statutory pension in retirement. The company pension first has to compensate for this “minus”.
This is a mathematician. A comparison with a private pension scheme is also recommended as an alternative.