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Germany shows support for deferred compensation scheme

GERMANY - The government has approved a draft law to extend a social tax exemption for deferred compensation schemes beyond 2008.
 
This exemption was created by a major pension reform in 2001 and enables workers to contribute up to 4% of salary to a deferred compensation scheme without being hit by social tax.

The government's move comes more than a month after IPE first reported German pensions minister Franz Müntefering had decided to extend the exemption beyond its expiration on December 31 2008 (see earlier IPE story: Müntefering to extend fiscal exemption).

Several high-ranking government officials, including those in Müntefering's own ministry, had opposed maintaining the exemption on the grounds it had caused a €2.2bn revenue shortfall in Germany's state-run health insurance scheme.

Yet Müntefering was ultimately persuaded by lobbying efforts from Germany's corporate pensions industry as the industry argued the further spread of corporate pensions - especially among smaller firms - greatly depended on maintaining the exemption.

Indeed, since the exemption was created, the number of German salaried employees who own a corporate pension has risen to 65% in 2006 from 50% in 2001. But employees at smaller firms still lack a corporate pension.

The draft law, which will now be sent to the German parliament for final approval, also lowers the threshold for acquiring a corporate pension.

As a result, a German employee from the age of 25 instead of 30 has a right to a corporate pension which cannot expire even if the employees leaves the firm where he or she acquired the pension.

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