Update 2024: Effects of the changes to the contribution assessment limits as of 1 January 2024 and the Growth Opportunities Act on company pension schemes

1. Increase in social security contribution assessment limits and their impact on occupational pension schemes

As of 1 January 2024, the contribution assessment limits for statutory health and pension insurance were raised by the Federal Ministry of Labour and Social Affairs in agreement with the Federal Council and adjusted in line with income trends to ensure social security. The existing contribution assessment thresholds in the social insurance schemes have been set at the following amounts:

This adjustment of the contribution assessment limits under social insurance law also has a direct and indirect effect on the area of occupational pension schemes, depending on the method of implementation: 

• The increase in the contribution assessment limit for pension insurance also increases the tax-free maximum amount for employer contributions to a pension fund, direct insurance or a pension fund to build up a funded company pension scheme. According to Section 3 no. 63 sentence 1 EStG, the tax-free portion amounts to eight per cent of the contribution assessment limit for general pension insurance each year. In the opinion of the tax authorities, the western contribution assessment ceiling is decisive for equal taxation. The increase in the contribution assessment ceiling will result in a maximum tax-free amount of EUR 7,248 (= 8 % of EUR 90,600) in 2024. The increase in employer contributions can therefore be beneficial for both employees and employers.
• If parts of remuneration are used for a direct insurance or provident fund pension scheme through deferred compensation, they are not considered remuneration for social insurance purposes in accordance with Section 14 (1) sentence 2 SGB IV, provided they do not exceed 4% of the annual contribution assessment limit for general pension insurance in the west. Consequently, the increase in the contribution assessment limit for pension insurance also leads to an increase in the social insurance-free contribution. In 2024, future pension beneficiaries will be able to pay in a maximum amount of EUR 3,624 (= 4% of EUR 90,600) free of social security contributions. 
• The change in the proportion of contributions to a pension fund, pension fund or direct insurance that is exempt from social security contributions therefore also has an indirect effect on the amount of the mandatory employer contribution, as in the case of deferred compensation in favour of a funded company pension scheme in which contributions are paid to a pension fund, pension fund or direct insurance, the employer must pay an additional 15% of the converted salary as an employer contribution to the company pension scheme, insofar as this saves social security contributions (Section 1a (1a) BetrAVG). 
• The above-mentioned changes may also have a direct impact on the amount of pension provisions in the case of salary-related pension commitments (in particular direct commitments) with a reference to the contribution assessment ceiling for pension insurance and/or in cases where social security pensions are taken into account (so-called total pension schemes). In most cases, however, these changes are already suitably taken into account in the calculation by the actuarial expert. 
• Since the adjustment of the reference value (Section 18 (1) SGB IV), small entitlements can be settled in accordance with Section 3 (2) BetrAVG if the monthly amount of the current benefit resulting from the entitlement would amount to a maximum of EUR 35.35/month (West) and EUR 34.65/month (East) if paid monthly.

Need for action? - When do you need to recalculate?
In most cases, there is a compelling need for action with regard to the adjustment of the mandatory employer contribution introduced in 2018 in the amount of 15 % of the remuneration converted by the employee in accordance with Section 1a (1a) BetrAVG. If the employer pays a higher subsidy limited to the contribution assessment ceiling, these contracts are also subject to adjustment unless they contain a dynamic offsetting clause - which is generally recommended in practice - with regard to the mandatory statutory subsidy in relation to the total subsidy promised in the contract. In this respect, the occupational pension commitments should be checked in particular for an existing dynamic increase in the employee's deferred compensation contributions.

The increase in social security and tax-free contributions should give rise to a review of the amount of employer contributions to the pension fund, direct insurance or a pension fund and, if necessary, readjustment taking into account the interests of the employer and employees.

2 Growth Opportunities Act and its relevant changes to the company pension scheme

The "Growth Opportunities Act" was promulgated in the Federal Law Gazette on 27 March 2024. With regard to company pension schemes, this results in the following changes in particular:

Pension allowance for emoluments from direct commitments and provident funds will only fall by 0.4 % per year from 2023

Benefits from direct commitments and support funds constitute taxable income from employment. If these constitute pension payments, they remain tax-free in the amount of the pension allowance and the supplement to the pension allowance in accordance with Section 19 (2) EStG. Starting in 2023, the percentage used to determine the pension allowance will no longer be reduced in annual increments of 0.8%, but only in annual increments of 0.4%. The maximum amount will now fall by EUR 30 per year from 2023 and the supplement to the pension allowance by EUR 9 per year. However, this will only apply to income tax deductions from 2025.

From 2025, the one-fifth rule can only be claimed in the assessment procedure

In particular, the tax reduction of the so-called fifth rule (Section 34 EStG) can be applied to the payment of capital benefits from direct commitments and support funds if the relevant requirements are met. Until now, this tax reduction could already be taken into account as part of the wage tax deduction procedure. From 1 January 2025, this will no longer be possible for reasons of simplification. However, (former) employees can continue to claim the rate reduction in accordance with Section 34 EStG in the assessment procedure.

Old-age relief amount will only decrease by 0.4 % per year from 2023

Here, too, the applicable percentage will no longer be reduced in annual steps of 0.8%, but of 0.4% from 2023. Starting in 2023, the maximum amount will be reduced by EUR 19 per year instead of the previous EUR 38. The age relief amount is particularly applicable to benefits from direct insurance policies, pension funds and pension funds that are taxed retrospectively if the beneficiary has reached the age of 64 before the start of the calendar year in which they received their income. 

Authors

Elisa Ultsch
Manager
+49 40 3785 3822
eultsch@deloitte.de

Benjamin Bauer
Senior Manager
+49 89 29036 7871
bebauer@deloitte.de

Daniele Sendler
Manager
+4921187723863
dsendler@deloitte.de