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German minister hints at concession on deferred compensation

GERMANY - Social affairs minister Franz Müntefering says he's willing to consider compensation for workers if the government ultimately abolishes a social tax exemption for deferred compensation.

The exemption applies to a part of salary (up to 4%), which workers can set aside for retirement provision. It will expire in 2008 unless the government in Berlin prolongs it.

IPE reported in early January that Berlin would very likely let the exemption expire. The reason: The exemption has caused a €2.2bn shortfall in Germany's state-run health insurance scheme.

But Germany's corporate pensions industry fears that if the exemption is scrapped, the further spread of the second pillar - particularly at smaller firms - may be endangered.

Speaking at a corporate pensions conference in Berlin, Müntefering said: "You all knew when the exemption was created in 2001 that it would expire seven years from then."

"However, in the interest of ensuring that deferred compensation remains attractive to workers, I'm open to discussion about alternatives to the exemption," he told the Handelsblatt-sponsored conference.

In terms of alternatives, Bert Rürup, one of Germany's leading pension experts, asked Müntefering whether the government would consider a "splitting model". Under the model, workers could pay health insurance tax on the amount (up to 4%) but remain exempt from paying into the state-run pension scheme.

Answering Rürup, who chaired the conference, Müntefering said: "I'm not sure whether that's workable as it sounds a bit complicated."

"Having said that, I'm grateful for this suggestion as well as other ones that come from Germany's pensions industry. We will consider them and discuss them with you before making a final decision on the exemption," he added.

Turning to the EU pensions portability directive, Müntefering said Berlin had managed to kill a requirement whereby employers would, with respect to inflation, adjust accrued pension benefits for former employees. The directive is currently with the European Parliament.

German employers were particularly hostile to this requirement, arguing that it would have raised their pension costs by up to 30%

Müntefering also said Berlin backed the idea of lowering the minimum age for employees to be able to retain pension benefits to 25 instead of 30 currently. "We feel this is appropriate as otherwise younger female workers, who may at some point leave their jobs to have children, would be put at a disadvantage," the minister said.

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