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More information about employer-funded pension
The tax-subsidized supplement to the statutory pensions!
These 5 ways of implementing the FOT are available:
Why is the FOT interesting for employees?
A company pension plan (BAV) is interesting for all employees who want to save taxes and enjoy their deserved retirement without financial worries.
(Exception: civil servants and civil servants are subject to different regulations, for which the FOT is not available in this form)
An employee agrees with his employer that he converts parts of the gross salary directly into contributions to a company pension scheme used to build a retirement pension.
In return, the employee receives from the employer a pension commitment. At the age of 60 at the earliest, an additional lifelong retirement pension is due.
Taxation of contributions to occupational pensions
The contributions for
– Pension funds
– direct insurance and
– Pension fund
are subject to income taxation up to certain limits. However, Paragraph 3 (63) of the EStG provides that 4% of the pension ceiling of West German pension insurance (2010 = € 66,000 annually or € 5,500 per month) plus € 1,800 for new commitments remain tax-exempt.
If contributions are paid into the company pension scheme by means of deferred compensation, the employee can demand that the conditions for granting an allowance (“Riester pension”) according to §§ 10a, 82 para. 2 EStG be fulfilled. Then the funding will be made from individually taxed contributions. However, with the subsidy subsidy or the possibly more favorable special deduction the taxation is reversed (§ 10a EStG).
For direct insurance and old-age pension fund commitments (not for old-age pension fund commitments), there is also the option of flat-rate taxation of contributions (Section 52 (52a) EStG in conjunction with Section 40b EStG (Federal Tax Code)).
Remuneration from a pension fund is worse for tax purposes than the previous occupational pension based on a direct pension or a provident fund. Therefore there is an advantageous special regulation gem. § 52 para. 34c EStG.
Basic information on the company pension scheme
The diagram on the right illustrates which implementation route the BAV can be operated on:
What happens when the employer changes?
If you leave the company prematurely, you have several options for continuing the contract:
the new employer takes over the contract and it continues without any changes.
You pay the contributions yourself and let the contract continue as private insurance. However, this eliminates the advantage of the flat rate tax
The contract is provided free of charge and continues with correspondingly reduced insurance coverage.
The 5 implementation paths of the FOT
Direct commitment By means of a direct commitment, the employer, the employee or even his family member, agrees to provide retirement benefits after the end of the employment relationship. So far, this has been the most widespread form of occupational pensions in Germany. The company is responsible for the supply because the payments are financed from company funds in the event of benefit. The employees do not make their own contributions. Therefore, they only receive state support if they operate an additional pension in addition to this commitment.
Pension Fund The Pension Fund is formally independent, ie not integrated into the company. The employer becomes a member of the provident fund and pays the amount withheld from your gross salary to the sub-fund. In order to finance the pension benefits, the sub-fund therefore receives grants from one or more companies. The pension or capital commitment promised in the individual benefit plan is secured by the provident fund via a pension insurance or endowment life insurance.
With regard to state funding, the same applies as with the direct commitment. The conversion can be made either from the current salary or from special payments.
Pension Fund The Pension Fund is very similar to direct insurance. It is a kind of insurance that is borne by one or more companies. In the Pension Fund, the employees themselves are members and make contributions, which may be supplemented by contributions from the employer. It is operated in most cases in the legal form of a “mutual insurance company”. This means that participating employees waive the benefit of the pension fund in question. Therefore, pension funds can offer cheaper rates than traditional insurers
Direct insurance Direct insurance is a special form of life insurance which the employer concludes as policyholder for his employees. Eligible for employment are the employee or his survivors. Financing is formally financed by contributions from the employer, who can claim these as personal expenses for tax purposes. In most cases, the employee participates through a salary conversion.
Pension fund A very flexible form of occupational pension scheme in every respect is the pension fund. It differs from the Pensionskasse in the free choice of forms of investment, but is also under the supervision of the state, which checks the security of the investment strategy. The preferential tax treatment (tax exemption of contributions) is partly offset by taxation of the revenue portion of the pension. The equity portion of a pension fund is usually higher than other pension funds. However, the higher return that such an investment strategy promises could be diminished by the demographic problem, the stock markets, the so-called age-wave problem.