Occupational Pensions: Pension benefits from Switzerland are subject to social security contributions in Germany

By judgment of 23 February 2021 (docket number: B 12 KR 32/19 R) the Federal Social Court (Bundessozialgericht) has ruled that benefits from a Swiss pension fund are subject to contributions in the German statutory health insurance and social care insurance if they are comparable to either a German state pension or a German occupational pension.

Facts / Background

In addition to his pension from the German statutory pension insurance, the plaintiff (pensioner) has been receiving a monthly pension from a Swiss pension fund of his former employer since 1 July 2012. With regard to these benefits from the Swiss pension fund, contributions to the statutory health and social care insurance were deducted (up to the contribution assessment ceiling).

The plaintiff took action against this obligation to pay contributions. He was of the opinion that the legal basis for the non-mandatory benefits of the pension fund was not the Swiss pension law, but only the employment contract, according to which the employer and the employee each had to pay premiums. These premiums, however, were not privileged under tax law. Thus, the pension fund was a private voluntary pension scheme. For this reason, these benefits (from the pension fund) were not comparable to benefits resulting from a mandatory (statutory) pension scheme.

The courts of lower instance rejected the plaintiff’s claim. They stated that the benefits from the Swiss pension fund were a pension comparable to a pension under German law.

Ruling

The Federal Social Court rejected the plaintiff’s claim and confirmed that the benefits from the Swiss pension fund are entirely subject to social security contributions. This is because they are comparable to either a German statutory pension or a German occupational pension.

The comparability of a foreign social benefit with a national social benefit requires that the foreign benefit corresponds in its core content to the typical characteristics of the national benefit. Just like German pension benefits, the pension benefits from the Swiss pension fund are linked to reaching a certain age, serve as a substitute for salary to secure livelihood in retirement and are provided by a special insurance carrier. Due to the fact that the benefits are not based on a legal basis but on an employment contract, a comparison with an occupational pension is more plausible than to compare it with benefits from the German statutory pension insurance, so stated the court further. It is not necessary that the Swiss pension fund meets all the requirements of a pension fund (or other funding vehicle) under German occupational pension law.

Conclusion

The ruling is of importance for practice as such cases occur regularly; In particular, cross-border commuters often receive benefits from Swiss pension funds. The Federal Social Court now provides clarity by focusing on whether the foreign pension scheme is comparable to either the German statutory pension system or the German occupational pension system. Such a comparison – and thus the obligation to pay contributions under German law – will likely be answered with yes in many cases, as in its core content many of the European pension systems work similarly to the German pension systems.