DEALING WITH A GERMAN PENSION

PART 3

December 2012

DEALING WITH A GERMAN PENSION 

43.1.31 Dealing with a German pension – ‘approved’ pensions

A pension held in Germany is unlikely to have achieved the necessary HMRC approval to qualify it for exclusion from the bankruptcy estate (see Part 2 of Chapter 61).

Subject to the pension being ‘approved’ within Germany, it is Service policy to effectively treat a German pension the same as an approved pension held in the UK and, in this regard, the guidance in paragraphs 61.39 and 61.41 of Chapter 61 should be followed.  Annex C1 is a letter that can be issued to the bankrupt explaining the position regarding his/her pension in this regard. 

The only exception to this is the German civil-service pension which is excluded from the estate (see paragraph 61.14).

The remainder of the guidance in this Part is to assist official receivers in deciding which German pensions would be considered to be ‘approved’ and therefore treated in line with Service policy.

 

43.1.32 Unapproved pensions

If a pension is unapproved in Germany, the official receiver should follow the advice given in paragraph 61.42 of Chapter 61.  

 

43.1.33 Initial action to be taken in respect of a German pension

In the first instance, the official receiver should establish what type of pension provision (see paragraph 43.1.34) the bankrupt has in order that he/she can decide what type of qualifying agreement to enter into (see paragraph 61.39).  It may be possible to establish this from the information provided in the statement of affairs, or it may be necessary to obtain information in the preliminary interview.  Any documentation relating to the pension should be obtained from the bankrupt as this may assist in identifying the provider and the amount of the payment being received, if appropriate. 

 

43.1.34 Overview of the German pension system

Germany does not have a state pension system similar to that operating in the UK, but the system in that country is not entirely privatised either.  There are essentially four types of pension: 

It is important to note that a German who has been employed will have pension provision under at least the first of the systems outlined above.  It would be unusual for a German bankrupt not to have some pension provision.

 

43.1.35 Public pensions

In relation to most PAYE employees, both the employee and the employer are required to make contributions to a statutory pension body.  The largest of these bodies is the Deutsche Renten­versicherung Bund (German Pension Insurance), which represents about 45% of all the insured, 30% of the pensioners and at the same time is also the representative of all statutory pension bodies in Germany. 

It is compulsory for both sides to make contributions, totalling 19.6% of earnings split equally between employer and employee.  Contributions may be made by the State in certain circumstances (for example, during maternity leave, illness or unemployment).

The compulsory PAYE scheme provides 90% of all retirement income paid in Germany so is likely to be the scheme most frequently encountered by official receivers – not least because all PAYE employees have to be part of the scheme.

Information about the German pension system is available HERE

 

43.1.36 Public pensions for the self-employed

It is possible for self-employed persons to be part of the ‘public’ pension system (see paragraph 43.1.35) and to make contributions to it, though this is not normally compulsory (unless, for example, the person was assisted in the start up of their business by a government grant or has a special profession like teacher, guardian, midwife or craftsperson). 

 

43.1.37 Public pensions as ‘approved’ pensions

The following web-page gives a list of the German public pension schemes that can be considered to be ‘approved’ for the purposes of the advice given in paragraph 61.39:

http://www.deutsche-rentenversicherung.de/SharedDocs/en/Navigation/01_Deutsche_RV/02_Versicherungstraeger_node.html

Where a German pension holder is living abroad, his/her pension will be administered by one of the following organisations: 

  • Deutsche Rentenversicherung Nord
  • Deutsche Rentenversicherung Knappschaft-Bahn-See
  • Deutsche Rentenversicherung Bund

It is therefore likely that official receivers will most likely encounter one of these three organisations, which can be considered to be ‘approved’ for the purposes of the advice given in paragraph 61.39.

 

43.1.38 Public pensions for professionals

There are some compulsory pension systems (called berufständische Versorgung  - professional pension schemes for the liberal professions) for certain professions that are typically self-employed such as physicians, pharmacists, architects, notaries, lawyers, tax consultants, veterinarians, chartered accountants, dentists and psychological psychotherapists which by and large operate similarly to the main compulsory pension scheme (see paragraph 43.1.35).

Such German pensions can be considered ‘approved’ for the purposes of the guidance given in paragraph 61.39.

 

43.1.39 Pension benefits under the compulsory scheme

Each year that he/she contributes to the compulsory scheme (see paragraph 43.1.35), a person accrues earnings points (‘Entgeltpunkte’) which relate to the level of their income against the average income.  A person on the average income would get one point, a person who earns 75% of the average income would get 0.75 of a point, and so on.  Come retirement, the person trades in their points against a fixed sum (currently 28.07 Euros per point in the territory of the former West Germany and 24.92 Euros in the territory of the former East Germany) to provide their monthly pension income.

Currently, in most cases, pension benefits are paid at age 65 though there circumstances where the pension holder may take the pension earlier - for example: 

  • A person who has made contributions for at least 35 years can retire at age 63.
  • A women who is 60, has completed 10 years of contributions after her 40th birthday and has made contributions totalling 15 years can retire at age 60.

Pensions taken before age 65 are reduced by 0.3% per month.

Between 2012 and 2024 the standard retirement age is gradually increasing to 67.

 

43.1.40 Voluntary PAYE occupational pension

In addition to the compulsory PAYE scheme managed by the German State (see paragraph 43.1.35), there are voluntary PAYE occupational pension schemes.  Typically, the employee will make contributions of between 3% and 15% of their earnings  - on top of those required under the compulsory scheme.  The employee contributions are matched by the employer.

Such German pensions can be considered ‘approved’ for the purposes of the guidance given in paragraph 61.39.

 

43.1.41 Occupational pension schemes

An occupational pension in Germany is broadly similar to the private pension schemes operating in the UK, funded usually by means of investment products offered by a financial institutions. 

Occupational pensions operated by a nationally recognised employer can be dealt with in line with the guidance in paragraph 61.39 of Chapter 61.

An occupational pension scheme operated by a company of which the bankrupt is a director should be treated as unapproved (see paragraph 61.42 of Chapter 61) until or unless the official receiver can be satisfied that the scheme has been formally approved by the German authorities.

 

43.1.42 Private pension schemes

A private sector personal pension in Germany is broadly similar to the private pension schemes operating in the UK, funded usually by means of investment products offered by a financial institutions. 

Personal pensions operated by a nationally recognised provider can be dealt with in line with the guidance in paragraph 61.39 of Chapter 61.

 

43.1.43 German civil service pension scheme

There is a state pension system for former civil servants (Beamte).  This system does not rely on contributions being made.  Pensions payments are made by the State, out of taxpayers’ funds, to the retired civil servants.

The Beamte scheme is excluded from the bankruptcy estate by operation of law (see paragraph 61.14

 

43.1.44 Contacting the pension provider

Unless the guidance in the Part is insufficient to assist in establishing whether the pension can be considered to be ‘approved’ (see paragraph 61.40), it should be necessary to contact the pension provider only to inform them that the bankrupt has entered into a qualifying agreement with the official receiver (see paragraph 61.41 of Chapter 61).  The letter attached at Annex C2 can be used by official receivers for this purpose.  Annex C3 is an English translation of Annex C2.

 

 

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