Employer Funded Pension. Company pension schemes are becoming increasingly important in Germany. Which form of provision offers the individual the best protection at favourable conditions depends on various factors.
Company pensions have a long tradition in Germany. In the past, this form of retirement provision was a voluntary service offered by employers to their workforce in order to strengthen their loyalty to the company. In recent years, company pension schemes have been regulated in several steps. Today the company pension is an essential pillar of the pension insurance in Germany. The second pillar of the pension system is becoming more and more important for most employees, as the benefits from the statutory pension insurance are no longer sufficient to secure the accustomed standard of living in retirement. Every employee has a statutory right to a company pension.
Entitlement to a company pension
Since 2002 every employee has been entitled to a company pension if they are willing to convert part of their wages.
Part-time and marginally employed employees who are subject to compulsory statutory insurance also benefit from the right to deferred compensation.
Employees with salaries above the income threshold can also benefit from the company pension scheme.
How is the company pension funded?
There are differences in the design of company pension schemes in individual companies. If you are employed in a company in which the employer alone pays the contributions for the company pension, there is no reason to turn down this attractive offer. If the employer and employee share the contributions, this is usually also an advantage for the employee. If only a deferred payment is possible, you have to calculate exactly which contribution amount is worthwhile. In this case, you pay the contributions alone, but reduce your deductions from the gross wage. As a pensioner, you have to pay taxes and contributions to statutory health insurance for the company pension.
Forms of company pension schemes
How the employer regulates the implementation of the company pension is largely up to him. Five variants are established. External insurance models are direct insurance, pension funds, pension funds and relief funds. With these coverage models, the pension provider that provides the promised benefits is independent of your company.
In the case of company pension schemes through direct commitment, your employer has an obligation. He has to build up reserves to guarantee the financing of the company pensions. These reserves appear on the company’s balance sheet.
Optimization through the total remuneration approach
However, its full effectiveness only unfolds when a high wage and salary strategy is applied through wage optimization.
When optimizing remuneration using remuneration modules, the employer and employee can jointly decide to exchange part of the gross wage for tax and social security subsidies in kind and cash. This increases the employee’s net income, and the employer incurs fewer ancillary wage costs.
In combination with the company pension plan, it is possible to create a higher pension with significantly lower net expenditure.
The interplay of labour, tax, collective bargaining and social security law must be observed.
It is therefore advisable to turn to proven experts in this area.
Employer Funded Pension