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Company pension provision and pension provision schemes for the self-employed

The new severance pay scheme regulated by the Company Staff and Self-Employment Pension Provision Act (Betriebliche Mitarbeiter- und Selbstständigenvorsorgegesetz, BMSVG) is financed by regular contributions of employers or the self-employed to a pension fund.

New severance pay

The new severance pay scheme applies to all employment relationships beginning after 31 December 2002. For employment relationships which already existed at that time, the transfer from the old to the new severance pay law can be agreed upon in writing by the employer and the employee.

Since 1 January 2008, new severance pay has also applied to non-standard contract holders, i.e. quasi-freelancers. It covers all non-standard, quasi-freelance contracts which are subject to compulsory social insurance according to the General Social Insurance Act (Allgemeines Sozialversicherungsgesetz, ASVG) and last for longer than a month. This principally also applies to non-standard contracts which already existed on 31.12.2007.

Payments to company pension and severance pay funds

According to the new regulations, the severance pay commitment no longer lies with the employer, but with legally independent company pension and severance pay funds.

The employer has to pay 1.53% of the gross wage (including special bonus payments) to the relevant health insurance fund. This checks the amount and passes it on to the chosen pension fund. In this way, the employee's entitlement to severance pay grows continuously. 

The obligation to pay contributions begins with the second month of an employment relationship; the first month is contribution-free. 

Severance pay funds have to keep an account for every employee which is then used as the basis for the calculation of severance pay. Once a year on the balance sheet date (also after the end of the employment relationship), all employees are informed in writing about their acquired severance pay entitlement and about the fundamentals of the fund's investment policy.

The entitlement of employees to severance pay

Employees are legally entitled to receive severance pay from the company pension fund. The employee has a right to this regardless of how the employment relationship was ended. Losing entitlement to severance pay, as could occur in the case of certain types of termination in the old severance pay system, is no longer possible. 

However, the right to have severance pay paid out is only present when the employee has paid in for three years and the employment relationship is terminated in one of the following ways: 

  • Notice is given by the employer
  • Unjustified dismissal or dismissal due to no fault of the employee
  • Justified premature resignation of the employee
  • Mutually agreed termination of the employment contract
  • Expiry of the employment contract. 
There is thus no entitlement to have severance pay paid out if the employee gives notice him-/herself (except during part-time work according to the Maternity Protection Act or the Fathers' Paternity Leave Act), in the case of dismissal due to the fault of the employee, or in the case of unjustified premature resignation and/or having paid in for less than three years.

Pension scheme for the self-employed

Since 1.1.2008, self-employed persons subject to compulsory insurance according to the Act on Social Insurance for the Self-Employed (Gewerbliches Sozialversicherungsgesetz, GSVG) are covered by the so-called obligatory scheme. This therefore applies to self-employed persons in commerce, trade and industry as well as the so-called new self-employed.

The obligatory scheme requires the self-employed to pay a contribution of 1.53% of their contribution base into a self-chosen pension fund. The contribution base is that which applies for the calculation of health insurance contributions according to the GSVG. 

Freelancers and the self-employed in agriculture and forestry whose compulsory insurance or self-employed work began after 31 December 2007 can register themselves to pay contributions within one year's time

The self-employed only have a right to freely dispose of the amount saved in their chosen pension fund at least two years after they have laid down their trade or profession.

Details on new severance pay can be found in German in the brochure Betriebliche Vorsorge für Alle and in the leaflet Soziale Absicherung für freie Dienstnehmer/innen. Both of these are available as PDF files from the download area.