New laws will enter into force again in 2019, influencing personal financial planning. MLP is keeping its eye on these reforms for you and demonstrating any need for action. Part 1: private and occupational pension schemes.
The legislator wants to make a difference to the statutory pension – without making supplementary pension schemes less important. Occupational pension schemes (bAV) are instead becoming even more attractive.
Occupational pension schemes: Enjoy a higher grant level
As it does every year, the contribution assessment ceiling will rise again in January. This is the maximum gross salary amount that is taken into account when levying contributions for statutory pension insurance. No contributions are charged on the portion of the gross salary exceeding this. In 2019, it is currently set to rise to 80,400/73,800 euros (West/East).
This also has a direct impact on occupational pension schemes. This is because, employees can invest in direct insurance, a pension scheme or a pension fund without the deduction of social security contributions at a rate of up to four per cent of the respective current contribution assessment ceiling. The same is true with respect to taxes but with a figure of up to eight per cent. In 2019, the maximum amount not subject to social security contributions will thus rise from 260 to 268 euros a month. The tax-free amount will increase from 520 to 536 euros. Should the employer also offer a relief fund (Unterstützungskasse) or a direct commitment (Direktzusage), the grant amount free from taxes and social security contributions can be increased further – to an unlimited extent with respect to the tax-free portion.
Tip: “By agreeing a so-called dynamic contribution assessment ceiling, contributions are automatically adjusted every year in line with contribution assessment ceiling development,” advises Ralf Raube, Head of Occupational Pension Schemes at MLP.
Occupational pension schemes: New employer contribution for deferred compensation
If the employee pays some of their salary directly into a pension fund, a pension scheme or direct insurance, from January the employer must additionally contribute 15 per cent of the deferred amount to the occupational pension scheme as an employer contribution if they themselves save on social security contributions through the deferred compensation. This obligation initially applies for new commitments from 1 January 2019. It will apply to existing commitments from 2022. However, a different arrangement may still be agreed in some collective labour agreements.
Statutory pension insurance to become more workable
The Act on Performance Improvement and Stabilisation in Statutory Pension Insurance (Gesetz über Leistungsverbesserung und Stabilisierung in der gesetzlichen Rentenversicherung) will enter into force on 1 January 2019. The government’s aim is to stabilise the pension level permanently. The so-called double stop line applying until 2025 is the means to the end. A pension guarantee will ensure that the pension level remains at the current level of 48 per cent until 2025. In addition, contributions up to then should not rise above 20 per cent of gross earnings or the assessment ceiling. They currently amount to 18.6 per cent.
However, the pension package is associated with considerable costs. For the financing of the stop lines alone, the federal budget must contribute an annual 500 million euros. Moreover, only the period until 2025 is considered here.
More than ever before, citizens must realise that the statutory pension is only one component of retirement provision. It cannot fund the standard of living to which a person is accustomed on its own. “Only a supplementary pension helps people to plan their retirement more flexibly and individually,” emphasises Miriam Michelsen, Head of Pension Schemes and Health Insurance at MLP.
Pension package: Higher pension for mothers and reduced earning capacity
The new pension act offers improvements for women who became mothers before 1992. In future they will be credited an additional two and a half pension points instead of two.
For individuals with reduced earning capacity who were unable to continue their profession until pension age for health reasons, there is also an increase from 2019. However, even these latest changes made by the legislator do not make additional cover dispensable – both with respect to retirement and incapacity to work.
Basic pension: Special expenditure deduction increases
Contributions to a basic pension can be deducted from income to be taxed as special expenditure, alongside those for statutory pension insurance. In January, the possible amount will increase to 24,305 euros (or 48,610 euros for married couples). A total of 88 per cent of this is actually deductible (previous year: 86 per cent). In concrete terms, this means that for contributions amounting to the maximum possible 24,305 euros, around 21,388 euros (42,776 euros for married couples with contributions of 48,610 euros) is tax-deductible. The ceiling is rising every year – until 2025 when the maximum amount can be made tax-deductible in full.
This article was published in german language from MLP. You can read the original article here.