1. The different systems and models in company pension schemes
Company pension schemes can be either employer-financed or employee-financed on the basis of salary conversions. Often in practice there are mixed systems consisting of an employee-financed contribution and an employer subsidy. This can depend on the conversion of remuneration, length of service, the position of the employee in the company while maintaining the principle of equal treatment, etc. The employee can be given a uniform commitment or separate commitments with a corresponding effect on the forfeiture.
2. Who bears the costs of a lump-sum benefit fund, direct commitment, direct insurance, etc.?
Regardless of who pays the contributions for the pension scheme and for which implementation path, the question arises of who bears the costs for the establishment and ongoing administration.
In insurance-type systems, the costs are regularly included in the tariff contributions and ultimately reduce the investment volume considerably in some cases. In the first few years in particular, only 50.00% of the contributions paid are often invested. This is one reason why employees often find insurance-type systems not particularly attractive. (See also my legal tip from 10/22/2020).
In entrepreneurial systems such as the lump-sum benefit fund or the direct commitment, the costs for the design of the pension system and ultimately also for employee advice are regularly borne by the employer. This assumption of costs is also recommended, since a key point of a company pension is employee motivation and employee loyalty, and it is precisely through such attractive designs that a unique position is achieved that is perceived as highly positive by employees.
The assumption of the costs by the employer is the usual way with the direct commitment or the flat-rate relief fund. If a company intends to design an entrepreneurial system for its employees, this also regularly includes the assumption of the costs by the employer.
3. How high are the costs of the various implementation channels with a lump-sum benefit fund, direct commitment, direct insurance, etc.?
In the case of insurance, 30% to 35% of the insurance premium is partly due to the costs. As a result, insurance benefits for employees are regularly very low. If, on the other hand, the employer assumes the relatively low and clearly calculable costs of setting up and administration in an internal implementation method (setting up costs, for example, averaging 1.00% to 1.60% of the supply volume in an employer-financed or an employee-financed system) this makes the system interesting for the employee and thus leads to employee loyalty and employee satisfaction in this regard.
4. “Cost neutrality” possible with the lump-sum support fund / direct commitment?
The employer who bears the costs can also design the company pension system in such a way that, although he has to pay the costs first, the system itself is “cost-neutral” overall.
In order to be able to achieve this target, the extrapolation must determine the interest from which the company has to earn cost neutrality. The system itself cannot of course be cost-neutral per se. There are certain costs for the establishment, administration, employer subsidy and the pension insurance association, but also tax advantages. The interest that is promised to the employee must also be earned as a result.
This system is cost-neutral if a certain return is achieved with the liquidity available. If the entrepreneur is willing to actually bear and spend additional payments, a significantly lower interest rate is necessary for funding. In simple terms, the larger the employer subsidy, the higher the return required to generate these subsidies “out of nothing”.
5. What are the administrative costs?
Administrative costs are predominantly unit costs in the lump-sum support fund and in the case of direct commitments, ie a fixed amount is charged annually for each employee who is administered. Volume-dependent costs are hardly justified and should also be avoided.
In corporate systems, the costs of administration are also regularly borne by the employer. They should also be taken into account when calculating the point at which cost neutrality can be achieved in an internal system.
In insurance-like systems, these are taken from the contract at the expense of the employees.
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