Significant increase in the social security ceiling for pension insurance planned from 2025
Effects on the occupational pension scheme
The social security thresholds are set to rise significantly in 2025. The current draft bill for the 2025 Social Insurance Calculation Regulation provides for an increase in the basis for contribution assessment in pension insurance to EUR 96,600 per year (2024 West: EUR 90,600) or EUR 8,050 per month (2024 West: EUR 7,550) as of January 1, 2025. For the first time, there will no longer be a difference between West and East. The reason for this lies in the wage growth in relation to Germany as a whole in the relevant reference year 2023.
Effects in the area of deferred compensation
The statutory entitlement to deferred compensation pursuant to Section 1a § 1a of the company pension law is 4% of the basis for contribution assessment. Accordingly, employees with a statutory entitlement to deferred compensation would have the opportunity to contribute more compensation to their occupational pension scheme (EUR 3,864 p.a. in 2025 instead of the previous EUR 3,624 p.a.).
The social insurance and tax-free funding framework in the insurance-based implementation channels in accordance with Section 3 § 63 of the income tax law is also based on the basis for contribution assessment. This means that up to 4% of the basis for contribution assessment (EUR 3,864 p.a. in 2025) of contributions through deferred compensation are exempt from social security contributions and up to 8% of the basis for contribution assessment (EUR 7,728 p.a. in 2025) are tax-free. Accordingly, it would be possible for employees to contribute these higher amounts to their occupational pension schemes free of social security and tax contributions.
This would then be accompanied by an increase in the mandatory employer subsidy of 15% in accordance with Section 1a § 1a of the company pension law or the subsidy linked to the amount of deferred compensation in accordance with the respective pension commitment.
Effects on employer-financed commitments with split pension formulas (defined contribution and final salary)
Split pension formulas are calculation formulas for determining a company pension benefit. The pensionable income above the basis for contribution assessment leads to higher pension benefits than below the basis for contribution assessment.
In the case of defined contribution pension commitments, where the contribution is calculated as a percentage of the salary above and below the basis for contribution assessment, future contributions would be reduced unless the salary increases in the same proportion as the basis for contribution assessment The entitlements already earned would remain unchanged.
In the case of final salary-dependent benefit commitments, the increase in the basis for contribution assessment is significantly more serious for the beneficiaries if the salary does not increase to the same extent. This is because the total pension benefit is generally calculated on the basis of the last salary received. If the pension event occurs immediately after the increase in the basis for contribution assessment or shortly thereafter, the pension benefit may fall substantially. However, if the insured event occurs at a later date, the losses may be fully or partially offset by future salary adjustments.
For the employer, an increase in the basis for contribution assessment in relation to pension commitments with split pension formulas and with balance sheet effects tends to mean relief.
Whether significant losses in pension benefits justify an individual solution in favor of the employees concerned could be questionable from an equal treatment perspective. TPC will be happy to assist you in assessing such a case.
Increase in the reference value for social insurance and increase in severance payment limits pursuant to Section 3 of the company pension law
The reference value for social insurance pursuant to Section 18 § 1 of the criminal code IV will also be increased to EUR 44,940 p.a. (2024 West: EUR 42,420) or EUR 3,745 per month (2024 West: EUR 3,535) by the draft bill for the Social Insurance Calculation Values Ordinance 2025. The severance payment limits of Section 3 of the company pension law, whose calculation formulas are based on the monthly reference value pursuant to Section 18 of the criminal code IV, will therefore increase on January 1, 2025 (for current benefits: 1% of the monthly reference value pursuant to Section 18 of the criminal code IV = EUR 37.45; for a lump-sum payment: 12/10 of the monthly reference value pursuant to Section 18 of the criminal code IV = EUR 4,494).
Legislative process and current status
The 2025 Social Security Calculation Ordinance is currently available as a draft. In particular, the cabinet decision (government draft) and the approval of the federal council are still pending in the further procedure. The 2025 Social Security Calculation Unit Ordinance will enter into force on 01.01.2025.
It is highly likely that the planned increase in the basis for contribution assessment – as set out in the draft bill – will be adopted.
Options for action from the increase
If the inclusion of the basis for contribution assessment dynamic or an increase in deferred compensation is desired and can be implemented in the insurance contract, employers must observe the following:
- Ensuring compliance with the overall social security and tax-free framework, especially in the case of multiple insurance contracts
- Adjustment of the deferred compensation agreement
- Adjustment of the employer’s contribution in accordance with the regulations of the applicable pension scheme
- Familiarization with and maintenance of existing payroll accounting systems
Whether and under what conditions the inclusion of the basis for contribution assessment dynamic (if not already included) or alternatively the increase in contributions, particularly for insurance contracts for employers and employees, is enforceable and sensible with the insurance companies must be examined in detail on a case-by-case basis. Consideration should also be given to the annually recurring additional administrative costs resulting from the correspondingly adjusted contributions and subsidies if the basis for contribution assessment dynamic is included. In contrast, a one-off increase would lead to a one-off additional administrative expense and a one-off adjustment of contributions and subsidies.
TPC will be happy to assist you with a case-by-case assessment.
Contact us for your personal consultation.