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Severance Pay new

What is the new severance pay system?

For employment relationships based on a contract under private law, where the agreed start date is after January 1, 2003, the new severance pay system applies. This is regulated by the BMSVG (Employee and Self-Employed Pension Act). The employer pays a monthly contribution of 1.53 percent of gross pay (including special payments) to a legally recognized employee pension fund. Contributions are collected by the health insurance provider, which forwards them to the employee pension fund selected by the employer. The first month of a new employment relationship is contribution-free. Upon termination of the employment relationship, therefore—unlike under the old severance pay system—the employer is no longer required to make any payments. The respective employee pension fund is responsible for disbursement or further investment of the funds. By paying the contributions, the employer has fulfilled all obligations under severance pay law.

As an employee, could I lose my contributions?

The employee does not lose the contributions paid by the employer into the pension fund, regardless of the reason for the termination of the employment relationship. They retain these contributions throughout their working life – regardless of any change of employer – (the so-called ‘backpack principle’). As a general rule, the contributions are invested in the staff pension fund and are only paid out directly to the employee under certain conditions.

When will my contributions be paid out?

A minimum contribution period of three years is required for the contributions to be paid out. Payouts are only made in the event of certain types of termination (not, for example, in the case of voluntary resignation, dismissal for cause or resignation without valid grounds). In principle, the employee has the right to choose whether to receive a payout or to leave the contributions in the staff pension fund.

If the employment relationship was terminated due to voluntary resignation, early resignation without good cause (early resignation by employees) or dismissal for cause (dismissal of employees), the contributions already paid remain in the staff pension fund and may only be paid out at a later date upon the termination of an employment relationship for non-culpable reasons (e.g. termination by mutual agreement, dismissal by the employer).

Learn more about our employment law practice area. Please feel free to contact us for further information.