Terms explained
Don't be put off by technical terms, you'll find the explanations in our lexicon.
B
bAV
BBG
See income threshold
BetrAVG
Is the Act on the Improvement of Occupational Retirement Provision, also called the corporate pensions Act.
Source: https://www.gesetze-im-internet.de/betravg/inde x.html
Biometric risk
The biometric risks relevant to corporate pension provision are old age (longevity), disability and death.
Legal basis: Section 1 (1) BetrAVG
BOLZ / boLZ
Abbreviation for defined contribution plan.
C
Company Pensions Act
See BetrAVG
Company Pension Strengthening Act
Describes the most far-reaching reform of the corporate pensions Act since its introduction in 1974. The aim of the legislator was to achieve a further spread of corporate pension provision on a voluntary basis through targeted measures. The corporate pensions Strengthening Act (officially: Gesetz zur Stärkung der betrieblichen Altersversorgung) was passed on 01.06.2017 and came into force on 01.08.2018.
Source: German Bundestag
Contribution assessment ceiling
See income threshold
Corporate pension scheme
This is when the employer promises an employee retirement, invalidity or survivors‘ benefits on the occasion of his/her employment. It should be noted that the reason for the pension benefit must be the employment relationship, a biological event must lead to the triggering of the pension benefit and the benefit must serve to provide care.
D
Defined contribution plan
With this type of benefit, the employer undertakes to pay certain contributions into the corporate pension scheme. This builds up an entitlement to retirement, disability and/or survivors‘ benefits for the employee. The amount of the benefit is based on the contribution made.
Legal basis: Section 1 para. 2 no. 1 BetrAVG
Deferred compensation (Entgeltumwandlung)
In the case of deferred compensation, the employee waives part of his/her gross salary, which then flows into an entitlement to a corporate pension.
Since the introduction of the Retirement Assets Act (Altersvermögensgesetz) in 2002, there has been a legal entitlement for all employees compulsorily insured in the statutory pension insurance to deferred compensation in the amount of up to a maximum of 4% of the respective contribution assessment ceiling (BBG) in the statutory pension insurance each year.
Legal basis: Section 1 para. 2 no. 3 BetrAVG
Deferred compensation agreement
As a supplement to the employment contract, the deferred compensation agreement concluded between the employer and the employee stipulates that the employee waives part of his gross remuneration and receives a commitment to corporate pension provision from the employer in return.
Direct insurance
Direct insurance describes a way of implementing corporate pension schemes in which the employer takes out an insurance policy on the life of the employee and the employee or his surviving dependants are entitled to receive all or part of the insured benefits.
Legal basis: Section 1b (2)
BetrAVG
Disability
In the opinion of the tax authorities, this is the case under the corporate pensions Act in the event of a reduction in earning capacity, incapacity to work, occupational disability or loss of a basic ability.
E
Employer
(as of BetrAVG)
An employer is anyone who can demand services from an employee on the basis of a contract of employment. The legal form of the employer is irrelevant.
Employer subsidy for deferred compensation
Refers to a financial benefit from the employer that is added to the amount of deferred compensation and made as a contribution to the corporate pension scheme. An employer’s subsidy is obligatory if the employer saves on social security contributions when converting remuneration and one of the implementation methods of direct insurance, Pensionskasse or Pensionsfonds is used for the corporate pension. Employers are then entitled to an allowance of 15% of the converted employee contribution.
Legal basis: Section 1a para. 1a BetrAVG
Employees
(as of BetrAVG)
Employees are blue- and white-collar workers including those employed for their vocational training.
Entitlement
The entitlement in the occupational pension scheme refers to pension entitlements already acquired. A distinction is made between the vested entitlement and the non-vested entitlement (see Vesting).
I
Income threshold
The income threshold is the maximum amount up to which remuneration and income from work are taken into account when calculating the insurance contribution. No contributions are payable for income above this limit.
A distinction is made between three income thresholds:
1. health and long-term care insurance – BBG KV
2. pension and unemployment insurance (old federal states and Berlin-West) – BBG RV (West)
3. pension and unemployment insurance (new federal states and Berlin-East) – BBG RV (East)
Values as of 01.01.2023
* BBG KV: EUR 4,987.50 per month (EUR 59,850.00 p.a.)
* BBG RV (West): EUR 7,300.00 per month (EUR 87,600.00 p.a.)
* BBG RV (East): EUR 7,100 per month (EUR 85,200.00 p.a.)
Values 01.01.2022 – 31.12.2022
* BBG KV: EUR 4,837.50 per month (EUR 58,050.00 p.a.)
* BBG RV (West): EUR 7,050.00 per month (EUR 84,600.00 p.a.)
* BBG RV (East): EUR 6,750.00 per month (EUR 81,000.00 p.a.)
Legal basis:
https://www.bundesregierung.de/breg-de/suche/beitragsbemessungsgrenzen-2023-2133570
Implementation path
The corporate pensions Act defines five implementation channels:
- Direct commitment
(also direct provision) - Direct insurance
- Pension fund
- Pension funds
- Support fund
Legal basis: Section 1 (1) BetrAVG and Section 1b (2)
to (4) BetrAVG
Insolvency protection
The corporate pension scheme is protected in the event of the employer’s insolvency. The institution responsible for insolvency insurance, which vouches for the employer’s obligation in the event of insolvency, is the Pensions-Sicherungs- Verein Versicherungsverein auf Gegenseitigkeit (PSVaG).
Legal basis: Sections 7 – 14 BetrAVG
Insurance-type solution
(insurance-contractual solution)
In the case of the insurance-type solution, the amount of the vested entitlement is determined by the insurance contract concluded. In this case, the employee who has left the company is treated as if the insurance contract had been non-contributory at the time of leaving and had been maintained until the insured event occurred.
Prerequisites:
- Implementation channel is direct insurance or pension fund
- Vesting exists (see Vesting)
- „Social requirements“ are fulfilled
Legal basis: Section 2 para. 2 sentence 2 BetrAVG or Section 2 para. 3 sentence 2 BetrAVG
M
Maternity allowance / maternity allowance supplement,
admissibility of conversion
Employees who are insured under the statutory health insurance scheme and are entitled to a maternity allowance (section 20 MuSchG) may waive this entitlement in favour of an occupational pension scheme.
Employees who are not insured under the statutory health insurance scheme but are entitled to maternity benefits (section 19(2) MuSchG) may also waive this entitlement in favour of an occupational pension scheme.
The reason in both cases is that the benefits have a remuneration function.
Legal basis: section 19(2) MuSchG, section 20 MuSchG
N
Narrow concept of surviving dependants
The corporate pensions Act does not impose any restrictions on the group of persons eligible for a survivor’s benefit. For the tax recognition of the survivor’s commitment, a narrow concept of survivor is assumed. In accordance with the so-called „narrow definition of surviving dependants“, the spouse, the partner in a registered civil partnership, the named cohabiting partner, if they share a household, and the dependent children are entitled to survivors‘ benefits, provided that the child has not yet reached the age of 25.
O
Obligation to pay
In principle, the employer is also liable for the fulfilment of the benefits promised by him if the corporate pension scheme is not implemented directly via him but via an insurer, a Pensionskasse or a Pensionsfonds. He is therefore subject to „subsidiary liability“.
Legal basis: Section 1 (1) sentence 3 BetrAVG
P
Pension Commitment
The pension commitment is the employer’s promise to provide a specific occupational pension benefit.
It is thus the legal basis for the employer’s payment to the employee.
There are four types of commitment:
- Defined benefit
- Defined contribution with minimum benefit (BZML)
- Defined contribution plan (boLZ)
- Pure defined contribution
Pensions-Sicherungs-Verein (PSVaG)
Portability
Portability describes the possibility of taking along (porting) the entitlement (pension claim) accrued with the previous employer to the new employer when changing the employer.
Since 01.01.2005, the employee has a legal right to portability for the implementation paths direct insurance, Pensionskasse and Pensionsfonds.
Prerequisites:
- the transfer value does not exceed the contribution assessment ceiling of the statutory pension insurance (allgemeine Rentenversicherung)
- the commitment was made after 31.12.2004
- the transfer must be requested within one year after termination of the employment relationship
Legal basis: Section 4 (3) BetrAVG
R
Retirement pension
Refers to a regularly recurring benefit that is paid for life after a certain age.
S
Salary change agreement
Survivors
T
Taxation, deferred
Deferred taxation occurs when contributions in the accumulation phase are tax-exempt and payments in the benefit phase are subject to tax.
U
Unisex tariff
These are pension insurance tariffs in which the gender of the insured person is not taken into account. This prevents life-long insurance benefits (pension payments) from being lower for women than for men (given the same conditions such as entry age, insurance premium, etc.).
Since 21 December 2012, only unisex tariffs are used.
Legal basis: ECJ judgement of 01.03.2011 („Test-Achats“, C-236/09)
V
Vesting
There are two types of vesting:
- statutory
- contractual
Statutory vesting regulates that an expectancy of pension benefits
- is immediately vested in the case of deferred compensation (financed by the employee).
- in the case of financing by the employer, a pension entitlement is vested when
- the employee has reached the age of 21, and
- the pension commitment has existed for at least 3 years.
The amount of the vested entitlement depends on the type of commitment. Depending on the implementation method, it is determined by means of the pro rata method (quotation method) or, in the case of direct insurance and Pensionskasse, by means of the so-called insurance-type (insurance-contractual) solution.
Contractual vesting allows for individual agreements on vesting, which, however, may not place the employee in a worse position than statutory vesting.
Legal basis: Section 1b (1) sentence 1 BetrAVG
Z
Zillmerisation ("Zillmerung")
„Zillmerisation“ describes the mathematical procedure for amortising the acquisition and sales costs of an insurance contract, which was developed by the mathematician Dr. August Zillmer.
With zillmerised tariffs, these costs are charged to the insurance contract at the beginning. In the case of non-zillmerised tariffs, these costs are spread over a longer term of the contract (at least five years).
For life insurance contracts concluded as of 01.01.2008, the acquisition and sales costs must be distributed evenly over at least the premiums of the first five contract years.
Legal basis: Section 169 (3) sentence 1 VVG
