Germany: Retirement: Compliance Update on Germany’s Salary Sacrifice Schemes

Effective date January 1, 2018

Our German Partner Profion recently released an in-depth article about legislation relating to salary sacrifice schemes. The legislation’s formal name is Betriebsrentenstärkungsgesetz, which translates into English as the Law to Strengthen Occupational Pensions.

Why was this law written?

With a rapidly aging population, and state pensions continuing to decrease, the government is trying to get small employers to encourage low paid employees to save money for retirement. The problem is such that pensioners, who were low wage earners, are having to apply for social welfare because their pensions are so low.

How government pensions work in Germany

Employers and employees contribute to the government run pension. This is a percentage based on the employee’s income. The contribution percentage is determined each year, and is split 50/50 between employer and employee.

Applying the law to salary sacrifice schemes

The law requires employers to contribute 15% of an employee’s pre-tax contribution to an employee’s salary sacrifice scheme. This is only if the employer saves money by contributing less to the social security system as result of the employee’s salary sacrifice.

Effective dates

Although the law comes into force in 2018, this obligation will be tiered. It will start in 2019 for new contracts, and in 2022 for all pre-existing salary sacrifice contracts.

Need benefits consulting in Germany?

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