German Pension Update for Employers 2022
This German pension update for employers in 2022 involves the Law to Strengthen Occupational Pensions (BRSG) which came into effect on January 1, 2018. As of January 1, 2022, German employers must contribute to employees’ deferred compensation plans. The idea of the law is that social security contributions that the employer saves due to employees’ deferred compensation plans are now required to be passed on to the respective employee’s plan.
Structure of the Tax Concessions
The tax-free limit for contributions paid into a direct insurance, traditional pension fund, or capital market-oriented pension fund (insurance-based products) increased from 4% to 8% of the social security contribution ceiling for pensions. Simultaneously, the amount of €1.800, which could previously be added to direct insurance contracts concluded before 2004, was done away with. The threshold for social security contributions remains unchanged at 4% of the ceiling. The following values as prescribed for the former West German states are thus applicable in 2018:
- Tax-free contribution limit = up to 520€ per month, e.g., €6.240 per year
- Social security contribution free limit = up to 260€ per month, e.g., €3.120 per year
Regulation Concerning Social Security Savings by the Employer
The law requires employers to pay 15% of the amount deferred by an employee under a salary sacrifice contract concluded on or after January 1, 2019, through a direct insurance, traditional pension fund, or capital market-oriented pension fund, to the extent that the employer saves social security contributions as a result of such salary sacrifice. For all salary sacrifice contracts concluded before January 1, 2019, this legal requirement comes into effect on January 1, 2022. Where a collective bargaining agreement binds companies, the stipulations of the collective bargaining agreement will apply. The payments made by the employer must also be made into the same funding vehicle, e.g., a direct insurance, traditional pension fund, or capital market-oriented pension fund, into which the salary sacrifice contribution is paid.
This article is by Profion, Asinta’s employee benefits consulting Partner in Germany. Please contact Asinta if you have further questions about employee benefits in Germany, and we will put you in touch with Profion.