Germany: Retirement: German Retirement Benefit Benchmarking and Trends

Germany: Retirement: German Retirement Benefit Benchmarking and Trends Effective date: January 1, 2018

Asinta’s German Partner Profion sends out a benefit trends and analysis report each year. This year you’ll find excellent information on German employee benefit trends, including social security pension ceilings.

You should also take note of the piece about Germany’s salary sacrifice retirement legislation, which includes a tax-free contribution limit that settled at 8%.

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.

Furthermore, employees with the means to defer higher amounts of their salary will benefit from the increase. This comes from the tax-free limit for salary sacrifice contributions paid into a direct insurance, traditional pension fund or capital market-oriented pension fund (insurance based products). The limit is from 4% to 8% of the social security contribution ceiling for pensions, which is €78,000 in 2018.

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.

Another key item in the report is employers are now required to pay employees 15% of any social security contribution savings employers make from an employee’s salary sacrifice. This is done by way of a direct insurance, or a traditional or capital market oriented pension fund.

Need benefits assistance in Germany?

Just let us know. We’d be happy to put you in touch with our German Partner, Profion.