New severance pay provisions were introduced from 1 January 2003 in accordance with the Company Employees Provision Act (BMSVG) for new employment relationships. The fund does not pay out if the employee terminates the contract.
An employee is entitled to freely dispose of any accrued severance pay if certain provisions are met:
- At least three year’s funds have been invested into NEW severance pay.
- The most recent employment contract has been terminated by the employer, by mutual consent, by dismissal through no fault of the employee, by legitimate premature resignation by the employee or by notice given by the employee during part-time employment according to Maternity Protection Act or Father’s Leave Act.
From the second month of employment onwards, an employer pays 1.53 % of the gross salary in contributions to the health insurance fund, which in turn passes the contributions onto a staff provision fund (Vorsorgekasse).
The staff provision fund invests the contributions and credits them including the returns on investment (after deduction of administration costs) to the individual’s personal severance pay account. Once a year, the fund should send a statement to the employee about the current status of the fund. A legally prescribed capital guarantee ensures that, regardless of the results of the investment, the final severance pay sum cannot be lower than the amount paid in by the employer.
TopSource Worldwide works with the staff provision fund BONUS VORSORGEKASSE.