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This document summarises recent legislative developments and trends related to employee benefits and highlights recently passed and pending legislation that may require employers to take action to comply with new rules.
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The future benefits payable by the state pension continue to shrink. Which is why the Government is subsidising private initiatives such as company pension plans.
An occupational pension scheme can be used to reserve part of your salary for financing your later retirement. One key benefit: lower tax/social security contributions during the accumulation phase.
What many in employment don’t realise is that Government will cut the guaranteed interest rate for pension/life assurance plans from 1 Jan. 2015 from 1.75% to 1.25%, on account of persistently low capital market rates. Accordingly, customers will only get the lower guaranteed interest rate when taking out a new policy after the close of 2014. This change not only places a long-term cap on guaranteed old age pension payments but also directly impacts the calculation of disability insurance premiums.
The long-awaited regulatory intervention will presumably be passed into law in late February. The erosion of rates has caused pension provisions to skyrocket since 2014, which places an enormous burden on company balance sheets, as they cause reported earnings to shrink. The steep rise in pension provisions is mainly a result of the regulation in force which requires rates to be calculated on a 7-year average.
The Cologne-based German Pension Insurance Association (PSVaG), which assumes occupational pension payment obligations for insolvent employers, has set its 2013 premium rate at 1.7 (2012: 3.0 per 1,000). This year, German businesses must therefore pay a significantly lower sum to secure pension insurance for insolvent firms than was the case last year.
In its ruling dated 15/05/2012 (3AZR 11/10), the BAG decreed that retirement benefits from a company pension scheme are not payable until the person attains the statutory retirement age (67 years) — despite the explicit specification of 65 years as the age at which the person qualifies for a pension. Contrary to the majority opinion in trade literature, the Court reached its interpretation by considering the fact that the employer, in specifying an age limit of 65 years, had typically assumed that company pension payments would be honoured at the same point in time at which the employee could also claim his or her full state pension. Notwithstanding the explicit specification of 65 as the pensionable age, the statutory age of eligibility from the state pension scheme must therefore be viewed as the age agreed.
On 16 June 2011, the International Accounting Standards Board (IASB) published a revised version of IFRS Standards IAS 19 (2011), which governs the recognition of benefits paid to employees.