How ZWP schemes work
Zeit-wertpapier(ZWP) is a savings scheme that ‘securitises’ a claim to paid release from work. Schemes are arranged on a voluntary basis and can be done either through ‘time shares’, relating to overtime work, extra shifts, vacation in excess of statutory amounts etc, or ‘money shares, coming from regular contributions from pay, from bonuses or by lump sum payments.
Contributions to ZWP are on a gross salary basis and accumulate in a mutual fund or Spezialfond and the emerging benefit after age 55 is subject to income tax and social security deductions. The balances in the fund and the employers’ social security contributions have to be protected against insolvency. But employees have to bear the investment risk when no guarantees are provided.
Using figures specially prepared by actuaries Bode Grabner Beye & Partner, Pension Consult says that for a 35-year old employee on union pay levels for the duration of their career to obtain 24-months early retirement before age 62, their monthly contribution would be 12hours of normallypaid working hours if investment yields averaged 6% pa through out, nine hours at 8% pa returns and 6.8 hours at 10% pa.
Under German ‘Flexi Law’ of 04/06/98 the definition of ‘credit balances’ is laid down, requiring written agreements be in place and allowing for the exempt credit balances, provided the wages before and after the exemption periods are commensurate. The ongoing up-dating of credit balances can be in the form of interest, guaranteed returns, or capital market investments.
In the event of death and permanent disability, the employee’s credit balance is payable as a oneoff amount to beneficiaries, or can be used to support payments in the event of disability. Tax will be payable on the payout. It also possible in the event of ‘adverse incidents’, the credit balances can be used for employee pension scheme benefits.