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What is the company pension scheme?
The company pension scheme, known for short as company pension scheme, forms the third pillar in the pension model alongside the state basic pension and private pension schemes. A distinction is made between the traditional company-financed company pension scheme and one financed by the employee.
How does the company pension work?
With employer-financed company pension schemes, the employer pays the contributions for the later company pension. After leaving the company, the employee has an immediate right to benefit in the form of a company pension.
In the employee-financed company pension scheme, the contributions are withheld from the employee’s gross wage and paid into a company pension scheme. This type of old-age security is known as salary deferred. The employer can assess the remuneration in the form of direct insurance, a pension fund, a pension fund or a benefit fund set up by the employer.
What are the pros and cons?
Both models have advantages and disadvantages for both the employee and the employer:
- The conversion of gross wages reduces social security contributions and wage tax, so that the net income increases.
- The disadvantage is that this reduces the contribution to be paid to the statutory pension insurance and the state pension benefit is reduced accordingly.
- Downstream income taxation also reduces earnings. Company pension agreements cannot be terminated. Should this nevertheless be the case, the saved income can only be accessed when the insured event occurs.
- For the employer, there are reduced social security contributions during the performance period.
- Employers must pay a 15 percent allowance for company pension contracts concluded after January 1, 2019. For contracts that already existed before this point in time, this subsidy regulation will only apply from 2022.
What happens to the company pension scheme in the event of termination?
In the event of termination, there is usually a transition period of one year in which the employee must decide whether the contract should be transferred to a new company. The new employer can join the existing contract and transfer the saved capital into his own pension system.
Employees also have the option of either continuing the contract with their own work or leaving it to rest.
Who is the company pension plan for?
The model is fundamentally worthwhile if the employer pays a subsidy towards the company pension, which increases the return.
For employees who change company after a short period of time, the model is one company pension less worthwhile, as existing contracts cannot always be taken with them.