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IPE special report May 2018

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Germany denies DC tax axe report

GERMANY – The government has dismissed a news report that it will axe social tax exemptions for defined contribution schemes created by the Riester pension reforms of 2001.

Under those reforms, employees were permitted to contribute 4% of their salary to a DC scheme. The contribution, which can include an employer top-off, is free of social taxes. However, the Riester reforms stipulated that the exemption would expire at the end of 2008 unless the government agreed to prolong it.

The Süddeutsche Zeitung reported today that the government would not prolong the exemption. The paper cited a 115-page report on pensions to be unveiled on Wednesday by Franz Müntefering, minister for labour and social affairs.

Yet the report was dismissed by Müntefering’s ministry. “The government has made no decision regarding the future of the exemption. The news report was just re-stating the status quo, which is that the exemption will expire at the end of 2008,” ministry spokesman Peter Ziegler said.

According to Ziegler, the ruling Conservatives and Social Democrats will decide on the exemption in early 2007, when a comprehensive report on the development of corporate and private pensions is published.

German occupational pensions lobby aba argues that retaining the exemption for the DC schemes under Riester is crucial to the further spread of the second pillar in Germany.

“As we have said time and again, the exemption must be retained. Otherwise, employees – especially those on lower incomes – will lose a key incentive to save for retirement on the corporate level,” Klaus Stiefermann, aba’s managing director, told IPE.

According to the last study on the spread of the second pillar since the Riester reforms, around 60% of German salaried employees own a corporate pension. The figure – which the government has hailed as proof that the Riester reforms are working – is still too low for pension experts like Bert Rürup, who is also one of Germany’s leading economists.

Rürup believes that corporate pension saving must be made mandatory, precisely because employees are not doing enough to compensate for the shrinking state pension.

Separately, excerpts of Müntefering’s report have been leaked to the German press. According to reports, the statutory contribution to the state pension scheme will rise from 19.5% of salary to 19.9% from 2007 but remain below 20% until 2019.

At the same time, the finance ministry will raise its annual subsidy to the state pension scheme to €57.4bn in 2009 from €54.8bn last year, the reports say. The reports add that Germany’s 20 million state pensioners will have their benefits frozen until 2008 at least.

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