Tax Reforms Proposed For German Pensions System

by Ulrika Lomas, Tax-News.com, Brussels

24 March 2003

One component of the raft of economic reforms promised by German Chancellor Gerhardt Schroeder to lift the country's economy out of the doldrums is modernisation of the overburdened state pension system, and the government's pensions commission headed by academic Bert Ruerup has now recommended that pensioners should pay progressively higher taxes on their pensions from 2005. In exchange, he proposes to end the tax-deductible status of life insurance premiums, reduce the tax deductibility for pensions contributions made by younger people, and eliminate the tax exemption of life assurance maturity benefits.

Finance minister Hans Eichel has said the recommendations were "interesting", and that the government would look into the implications of the proposals, and propose legislation in time for 2005. Whether this occurs is a matter of some conjecture as a "Reformstau", a logjam of much-needed reforms that have a habit of not materialising, often holds the modernisation of much of the German economy back - a problem that is quite likely to blunt the impact of many of Schroeder's ideas for reform.

Germany's mutual fund association, BVI, has been aiming to obtain a level playing field for life insurance and pensions products for several years, but a spokesman said it had yet to fully analyse the commission's proposals.

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