DIREKTVERSICHERUNG/DELAYED COMPENSATION FOR EMPLOYEES IN GERMANY 2020
WHAT IS A DIREKTVERSICHERUNG?
A life or pension insurance that an employer takes out for their employees. An employee can invest up to 276 euros a month from their gross salary free of tax and social insurance obligations. This reduces the gross salary and thus the taxable and social insurance obligations, which are based on gross income. The social insurances involved are unemployment insurance, public health insurance, State pension insurance.
Employers are now legally obliged to match the employee contribution with a minimum 15 per cent top up. Employers are also legally obliged to offer a company pension to their employees - whether a Direktversicherung or an alternative model. An employer can also offer to pay 100% of the contributions as an incentive for the workforce and save tax and social contributions!
This kind of pension is not available for self-employed people or those with a 450 euro MiniJob.
WHAT ARE THE ADVANTAGES?
As mentioned, reduced obligatory tax and social insurance payments during an employee ́s working career.
Security for the employee: since 2018, all employee Direktversicherung contracts are safe. (The German term is " unverfallbar." In other words, the employer cannot " keep the paid in contributions " for themselves if the employee leaves the company after 3 years of service and at least 21 years old at the time they change jobs/companies. Some more caring employers build in this unverfallbar clause from the first day of the contract these days anyway.
An employee changing jobs can usually just inform the new employer about the existing Direktversicherung and the contract can continue at the new company. If the employee becomes self-employed or unemployed, they can opt to continue the pension payments themselves or freeze the contract till better times arrive.
If the company goes bankrupt, the insurance company can con tinue the payments till the employee gets a new job.
The employee can choose from the start a monthly pension payout or a one-off payment at the end of the contract. But no payments are possible before the legal pension age and a
contract cannot be cancelled by the employee or " partly sold " eg to buy a new fridge or car or whatever!
WHAT ARE THE DISADVANTAGES?
The pension at the end is taxable!
People who have compulsory public health insurance must also pay extra contributions towards public health insurance as pensioners for up to 10 years if they have chosen an annuity payment and if the pension from it is over 160 euros a month (as of 2020) or an higher one-off payment if they have chosen that alternative.
These rules do NOT affect those who have been privately health insured or voluntarily publicly health insured.
ONE final disadvantage....it is possible in some cases that an employee who has saved a certain amount of compulsory pension payments during their working life will then be faced with a lower State pension later because they have paid in less than they otherwise would have!
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