A new Deloitte article lays out what the firm thinks are five key findings from the German government’s proposed new Company Pension Strengthening Act 2.0 (BRSG 2.0-E).

The professional services giant said the draft bill, which was first published at the end of June, is a ‘step in the right direction’, but that it still expects to see further legislation in this regard. The draft bill is the second law that aims to strengthen company pension schemes.

Overall, Deloitte wrote, the proposed act does not include what it calls ‘the big breakthrough’, despite improvements, because the legislators have not considered all suggestions.

The firm wrote: “[These include] for example, to clarify the quantitative parameters for the equivalence of the value of occupational pension commitments in the form of defined contribution or defined contribution with minimum benefit. Since the ministries leading the legislative process have already conducted extensive consultations with and in practice on the BRSG 2.0, the further legislative process is not expected to result in any material changes to the BRSG 2.0-E.”

Deloitte laid out four other key developments from the legislation:

1. A deferred compensation through opting out, with higher employer contributions an elected works or staff council.
2. Extended social partner models, with employers unbound through collective agreements being included with the consent of social partners.
3. Early access to company pensions, even for partial pensions.
4. Other changes, including an increase in severance payment limits, instalment payments by pension funds, support for low earners, and changes to pension funds.

On the last point, Deloitte said the modifications take into account the abolition of the additional income limit for recipients of an early retirement pension from the statutory pension insurance. This means, it said, that the pension funds can regulate how they will pay benefits even if there is a partial loss of earned income.

While this is an optional provision, funds can continue to link the payment of their benefits to the complete loss of earned income.

Deloitte wrote: “The long-discussed and appropriate desire of pension funds for an adequate regulation to allow for temporary underfunding of the security assets – i.e. a deviation from the requirement for complete coverage at all times – has now been included in the draft bill. Section 234j VAG will be supplemented by five further paragraphs.”

It added: “The articles of association must allow for such a regulation and contain a reorganisation clause. The shortfall is limited to 10 per cent of the minimum amount of the security assets. Finally, the pension fund must agree a so-called security assets plan with employers or third parties before the shortfall occurs and have it approved by the supervisory authority.”

The firm also laid out the next steps that the legislation will go through, starting from next week.

It added: “The draft bill was sent to the associations on 27 June 2024, who have until 25 July 2024 to comment on the draft. The draft is to be adopted by the cabinet at the end of August 2024, after which the parliamentary legislative process will begin, which will also include the necessary approval of the Bundesrat. The explained provisions of BRSG 2.0-E are to come into force on the day after it is published in the Federal Law Gazette, with the exception of the regulation on the promotion of low earners. These are to apply from 1 January 2025.”

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