Revised pension portability and vesting rules
New regulations for closed complementary pension plans
- Portability of funds is only allowed while participants are not receiving pension benefits and when they are no longer linked to the employer to withdraw portable reserves accrued in open pension funds. Reserves from closed pension funds cannot be withdrawn.
- Employee associations (plano de benefício instituído por instituidor) allow withdrawals from employer contributions after a minimum of 18 months. For participants’ contributions, the waiting period for withdrawals must be set at between six months and two years from the participant joining the fund.
- Companies can change plan provisions to increase the number of withdrawals to maximum 60 instalments, minimum 12 instalments. Alternatively, participants must be allowed to receive their compensation on a deferred basis.
Retirement age raised and employer subsidies introduced
The German government has raised the retirement age while offering subsidies for companies to hire older workers
- To reduce the strain on the pension system due to the aging population, the German parliament has passed a law to increase retirement age from 65 to 67 between 2012 and 2029. Only workers with contributions over a 45-year period will be able to retire at 65 without any deductions.
- In parallel, parliament agreed to provide a three-year subsidy for employers who hire workers aged 50 and above if they remain employed for at least one year (combined-wage model/Kombilohn). This measure aims to encourage the unemployed to accept lower-paid jobs.
Changes to social security
The new calculation of benefits should ensure the system’s sustainability - with the greatest impact on higher-earning employees
- The new calculation of benefits will take the average of a two-benefit formula (the 10-year final average pension capped at 12 times the Social Support Index - currently EUR 4,774 - and the career average pension) weighted by the number of years of membership in both schemes.
- As of 2008, a reduction factor will be applied: the ratio of a person’s life expectancy at age 65 in 2006 divided by their life expectancy at age 65 prior to the year of retirement. People retiring after that age and/or contributing extra to a pension scheme will have a lower reduction.
- Individuals can request an early retirement pension if they have at least 30 years of scheme membership at age 55. Additionally, the rate of benefit penalty has been increased to 0.5% for each month prior to attaining age 65.
- Full disability is newly determined as when a person is unable to work in any capacity or profession. The pension will be payable only after three years of scheme membership.
Country Information Source: Watson Wyatt Global News Briefs
Discussion on the Pan-European Pension Fund Directive (IORP) continues
- The European Parliament aims to pass an additional directive regarding pension portability within the European Union, and is increasing efforts to harmonize the tax treatment of pension contributions.
- In addition, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) is investigating the different interpretations of European Unions’ IORP (Institutions for Occupational Retirement Provisions) Directive, aiming for a common understanding of the Directive within the EU countries. The resulting study due for completion at the end of 2007 will play an important role in discussions on the IORP review, set to begin in 2008.
Clearly, the need to agree compromises between different countries makes it more difficult to pass new regulations than in purely national regimes.