GERMANY - The Confederation of German Employers' Associations (BDA) and the Association for Company Pension Schemes (ABA) have reacted angrily to the government's proposed Retirement Income Act, set to take effect in January 2005.
The proposals seek to harmonise taxation across the three external pension vehicles, namely direct insurance, Pensionskasse and Pensionsfonds.
This would involve moving to the EET model, whereby benefits will be fully taxable in the future and contributions to all three vehicles will be tax-free up to 4% of the individual’s gross salary.
But employers claim that this just limits the choice and flexibility of a system that is already weak. “What we need least at the moment are blows against company pensions from the legislators,” said Klaus Stiefermann, managing director, ABA.
“If it comes to such a deterioration of tax and contribution rights, the growth of company pensions could soon grind to a halt,” added Dieter Hundt, president, BDA.
The problem lies in the abolition of the TEE option on the direct insurance vehicle, where the contributions are currently taxed at a flat rate, the interest accrued is tax free, as is the benefit.
“Because all external vehicles are limited to this 4% contribution, regardless of if it comes from the employee, or also from the employer, the employee has the first choice,” said Dirk Popielas (pictured), executive director Goldman Sachs Asset Management.
“If the employee takes the 4% for deferred compensation, then the vehicle is closed and the employer cannot use these vehicles for off-balance sheet financing of their pension plan. That actually creates the danger of lower participant rates of employer financed schemes.”
In response, the BDA and ABA have called for a doubling in the tax-free contribution rate to 8%.
But as Alf Gohdes, managing partner Buck Heissman pointed out: “That’s a fiscal question and I don’t think that Germany is in a position at the moment to give a lot of tax concessions.”
In the wake of the closure of Commerzbank’s company pension scheme, the stability of final salary schemes financed internally by company assets has never been in more doubt. Reducing flexibility in external financing options could well turn out to be counterproductive.
Mark Evans has been appointed as a director at Independent Trustee Services (ITS) to lead trustee appointments in London.
The Pension Protection Fund (PPF) is consulting on changes to the actuarial assumptions it uses in valuations in a bid to better reflect the bulk annuity market, with schemes set to move into surplus on aggregate.
Private sector defined benefit (DB) schemes were 96.3% funded on a Pension Protection Fund (PPF) compensation basis at the end of July, according to the lifeboat fund's monthly index.
Conduent has completed the sale of its actuarial and human resource consulting business to private equity investor, H.I.G. Capital.