Expansion of pension benefits for more employees

The German government has given the green light to the Second Strengthening Act of Occupational Pensions, set to come into force on January 1, 2024. This legislation aims to make occupational pensions more accessible to employees with low and medium incomes, particularly among smaller companies.

According to the draft law, the tax improvements for occupational pensions are estimated to cost the state around 155 million euros per year. The tax promotion of these pensions is also set to be increased, with a view to encouraging more employers to offer them.

One of the key objectives of the Act is to address gaps in the spread of occupational pensions. To achieve this, the law plans to flexibilize regulations for pension funds and facilitate agreement on occupational pensions through the existing social partner model.

The Act also introduces more risks in occupational pensions, such as opt-out systems, where a part of the salary is automatically used for occupational pensions unless an employee actively chooses to opt-out.

Good occupational pensions, according to Social Minister Barbara Bas, contribute to a better quality of life in old age. They help ensure that people who have worked hard all their lives can live well in retirement. Finance Minister Lars Klingbeil echoes this sentiment, viewing occupational pensions as an important pillar alongside the statutory pension.

As of the end of 2023, around 18.1 million socially insured employees had an active occupational pension entitlement, which was approximately 500,000 more than in about 2017. Despite this increase, the spread of occupational pensions fell slightly to 52 percent due to stronger employment growth.

From 2027, the pension contribution is set to rise from the current 18.6 to 18.8 percent, as outlined in the draft law. Smaller companies will also be able to offer occupational pensions more easily, for example, as part of a collective agreement.

The Second Occupational Pension Strengthening Act is a significant step towards making occupational pensions more accessible and appealing to a wider range of employees, thereby ensuring a more secure retirement for many Germans.