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German Lawmakers Send Pension Bill To Mediation Committee

By Ellen Thalman, Dow Jones Newswires,

May 14, 2004

A German bill to alter how pensions are taxed and do away with a tax exemption for life insurance savings products will go to a mediation committee, after the upper house of parliament rejected it Friday.

Opposition lawmakers from the Christian Democratic Union, which holds the majority of seats in the Bundesrat, said they weren't happy with the plan to eliminate insurance tax exemptions. They also would like to implement tax exemptions for a wider variety of pension savings products.

The main aim of the law is to tax pensions at retirement instead of when people pay into the public system, as is current practice. It comes in response to a decision by the constitutional court requiring the change.

The government hopes the law will ease the tax burden for workers and that they will use the tax savings now to build up private retirement assets.
With a growing elderly population, Germany doesn't have enough workers paying into its public pension system to maintain high pension levels in the future. Under the German system, today's workers pay for today's retirees.
The law passed its first legislative hurdle when Germany's lower house of parliament, controlled by the ruling Social Democrats and Greens, agreed to it at the end of April.

The opposition has swung back and forth on whether it would vote for the bill. Now, a mediation committee will rework the bill before it is resubmitted to the lower and upper houses, probably before the summer break in July.
The bill foresees scrapping the tax exemption for payouts from life insurance-based savings products while allowing a small tax break when the policies mature.

Savers are currently exempt from paying taxes, as long as they hold the savings plan for at least 12 years. The plans pay out either a lump sum or annuity after a specified savings period, or a life insurance benefit if the holder dies before the contract ends.


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