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Pension insurance

2016 Annual report Volume II No. 1 - Pension insurance: Revise payment of obligatory contributions of self-employed persons

The Federal Ministry of Labour and Social Affairs should revise the rules for the payment of obligatory pension insurance contributions by self-employed persons. These persons should be compelled to participate in the direct debit procedure. This would help simplify the administrative procedure and reduce the administrative burden on the pension insurance bodies and the risk of contribution arrears.

A number of self-employed persons come under a statutory provision on compulsory pension insurance scheme. We found that craftspeople that come under the scheme have largely paid their compulsory contributions in a timely and regular manner, if they participated in the direct debit procedure. Conversely, irregularities and contribution arrears occurred frequently in those cases where such persons did so by credit transfer or direct payment. The resulting compulsory collection procedures were long and caused large administrative burdens for the pension insurance bodies. Moreover, the self-employed persons had to pay default fees. Also, some of them shifted their mode of payment between direct debit and credit transfer which caused additional administrative burden on the pension insurance bodies.

Up to 1992, self-employed persons were obliged to authorise the direct debiting of their bank accounts. The Ministry considered the direct debit method as an efficient method for ensuring the payment of compulsory contributions.

Nevertheless, it changed the rules for the payment of contribution and also permitted credit transfer or direct payment.

We therefore demanded the return to the compulsory payment by direct debit.

This provides for a uniform administrative procedure and reduces both the administrative burden and the risk of contribution arrears.

 

2016 Annual report Volume I No. 12 - Offsetting of farmers’ pensions – reducing federal pension liabilities

Since 1986, farmers’ pensions have no longer been taken into account in calculating federal civil service pensions. However, other pensions, such as pensions from the compulsory insurance scheme, are to be offset against federal civil service pensions. The Ministry needs to take steps to also take into account farmers pensions.

The farmers’ pension scheme is a public body, 77 per cent of which is financed through tax revenues. Pursuant to the Civil Servants’ Pensions and Allowances Act, other pensions, such as pensions from the compulsory insurance scheme, are to be taken into account when calculating federal civil service pensions in order to avoid a duplication of retirement benefits from public funds. In 1986, the Federal Administrative Court held that this rule did no longer apply to farmers’ pensions.

The farmers’ pension scheme has since been harmonised with the statutory pensions insurance. In our 2001 annual report, we therefore requested the Ministry to also take into account farmers’ pensions in calculating civil service pensions. The Public Accounts Committee of the German Parliament’s Budget Committee concurred with our recommendation. Several federal states already take into account farmers’ pensions in calculating civil service pensions. Nevertheless, the Ministry did not take steps to include such a provision in the Civil Servants’ Pensions and Allowances Act.

We highlighted this weakness. Not taking into account farmers’ pensions in calculating civil service pensions leads to excessive and thus improper pension payments from various public pension bodies. Moreover, the existing procedure gives preferential treatment to retired federal civil servants also receiving farmers pensions’ compared to such civil servants receiving benefits from other statutory pension funds. We expect the Ministry to amend the Civil Servants’ Pensions and Allowances Act accordingly.

 

2015 Annual report – spring report - No. 3 - Pensions claims without complete payment of contributions

Allowance offices of public employers have in many cases not paid pension insurance contributions for voluntary (unpaid) carers because they did not know that these came under compulsory insurance. The administrative procedure could be changed so as to ensure that all due contributions are paid to give the carer a claim for future pension benefits.

Unpaid voluntary carers are covered by statutory pension insurance, if they attend to a person needing care during at least 14 hours a week. The insurance contributions for them are paid by the statutory nursing insurance fund and private insurance companies. Where the person needing care also receives health care allowances from a public employer or public health care benefits, the contributions for the carers are to be paid by the entities granting the allowances or benefits in proportion to their respective allowance or benefits payments. In these cases, we had repeatedly criticised that many allowance offices did not pay pension insurance contributions for carers. The statutory nursing insurance funds and private insurance companies had failed to inform the relevant allowance office that the contributions were due. The Federal Pension Insurance Fund alone had lost revenues of at least €550,000 from contributions for carers during one year. The total amount of unpaid contributions to all statutory pension insurance funds could be far in excess of €1 million annually.

We recommended that the statutory nursing insurance funds and private insurance companies first pay the full pension insurance contributions, permitting them to claim the reimbursement of the due portion of contributions from the respective allowance offices. This would simplify administrative procedure and secure the contribution revenues of the pension insurance funds.

 

2014 Annual report No. 31 - Health weeks – pension scheme services offered without legal authority

Without legal authority, the German Pension Scheme for Miners, Railway Workers and the Seamen offered health weeks to everyone in its hospitals against payment. The Federal Ministry of Labour and Social Affairs has to ensure that social insurance bodies engage in commercial activities only to the extent permitted by applicable law.

In their hospitals, statutory pension schemes provide medical rehabilitation services to insured disabled people or to those at risk of disability. In addition, they may offer preventive medical services to preserve workers’ ability to work where their jobs are particularly hazardous to health. Their pension insurance bodies fund the provision of these services which they are obliged to provide by law from the contributions of insured persons and a grant from the Federal Budget.

In its hospitals, the above mentioned pension insurance body offered health weeks to everyone at a price between €380 and €850. However, this engagement in commercial activities is not permitted by law. Health week services are almost exclusively booked by enrollees who are legally entitled to such preventive medical services. Insured persons shall not be urged to pay for these services out of their own pockets. Such services shall not be offered to other persons.

The Federal Ministry of Labour and Social Affairs must ensure that engagements in commercial activities do not exceed admissible limits.

 

2013 Annual report – spring report - No. 3 - Excess administrative burden of ascertaining other income of orphans to be set off against the orphans’ pension claims

Once orphans have reached the age of majority, the pension insurance bodies are obliged to annually ascertain other income of adult orphans that draw orphans’ pensions, since such other income may reduce the pension claim. However, the costs incurred for ascertaining income exceed the total amount of the pension reductions.

Orphans have a claim to an orphan’s pension up to age 27, if they attend school or vocational training. If they have other income of their own, this may reduce the pension claim. The relevant statutory provisions are complex and require comprehensive legal knowledge. They also result in a vast administrative burden on the pension insurance bodies themselves, the orphans, their employers and health insurance funds. For the pension insurance bodies alone, ascertaining the other income of the claimants causes expenditure of at least €12.5 million annually. The pension insurance bodies estimate the total deductions from pension claims at €8 million, while our audits suggest an even lower figure. We recommended that the provision requiring the deduction of claimants’ other income from the pension claim should be repealed. In line with a change made in the case of child benefit, the pension insurance bodies could then limit their determination of claims to the question as to whether the adult orphans are undergoing training and whether the training actually demands the input of most of their time and capacity to work.

The Federal Ministry of Labour and Social Affairs has already drafted a legislative amendment and stated that it would arrange for its enactment, along with the amendment of other provisions, still during the life of the present Parliament.

In our opinion, it is necessary to disconnect the draft amendment from other legislative projects not yet agreed and to submit the amendment concerning orphans’ pension claims to the Legislature without delay.

 

2013 Annual report No. 37 - Pension insurance bodies throughout Germany intend to harmonise their guidance to ensure consistent application of the law

Acting on our recommendation, statutory pension insurance bodies intend to provide their staff with nationwide, uniform guidance on how to apply relevant legislation. Joint guidelines can help the bodies to implement federal law consistently and to enhance the Federal Pension Insurance's public reputation.

Two federal bodies and 14 regional bodies perform the tasks of statutory pension insurance. Their staff decides on pension matters according to the German Social Law Code, such as old-age pensions and pensions on account of reduced earning capacity.

As early as in 2001, we found that statutory pension insurance bodies provided their employees with inconsistent guidance on how to deal with pension matters. We recommended that the bodies consolidate their guidance to ensure uniform application of the law. They promised to act on our recommendation.

During a follow-up audit carried out in 2012, we found, however, that inconsistent guidelines on the application of the law persisted. In our view, this situation involves significant legal risks for the bodies and could be detrimental to the public reputation of the statutory pension insurance. We demanded that relevant guidance be harmonised.

According to information provided by the bodies, they have responded to our demands and agreed on harmonising their technical guidelines. They informed us that they were currently discussing when and in what steps to implement the harmonisation. We hold that joint guidance will contribute to a consistent application of federal legislation.

 

2012 Annual report No. 36 - Waiver of unnecessary pension adjustment notices generates savings of €10 million

In future, the statutory pension insurance bodies will no longer have to mail pension adjustment notices in years in which pension amounts do not change. This measure was adopted in response to our recommendation which in turn was based on a suggestion made by the German Federal Pension Insurance. The annual savings thus generated for all pension insurance bodies total €10 million.

Pension amounts are adjusted once a year. The pension insurance bodies have to inform beneficiaries about the new monthly pension amounts. These amounts did not change in 2010 (zero adjustment).

Therefore, the German Federal Pension Insurance approached the Federal Social Ministry and suggested a change of the legislation. According to this suggestion, the pension insurance bodies were to be permitted to waive pension adjustment notices in case of a zero adjustment. However, the Federal Social Ministry considered a legislative change at short notice impossible. Moreover, the Ministry was concerned that the pensioners would not be adequately informed, if no pension adjustment notices were sent out in case of zero adjustment. Therefore, the pension insurance bodies were compelled to send out pension adjustment notices in 2010 in spite of a zero adjustment in that year. According to our calculation, this caused administrative expenditures of €10 million.

We recommended that the Federal Social Ministry consider the option of omitting the mailing of pension adjustment notices in case of zero adjustments. The German Federal Pension Insurance also advocated this option. The Ministry now has taken up these recommendations by amending legislation accordingly.

 

2012 Annual report No. 35 - Inadequate management of electronic archiving of pension files causes millions of euros in extra cost to the German Federal Pension Insurance

The German Federal Pension Insurance determined procedures and responsibilities for the electronic archiving of part of its pension files either not at all or belatedly. In October 2006, the governing board of the Federal Pension Insurance decided to have four million pension files archived electronically because the files were stored in an archived building on premises which the Federal Pension Insurance intended to use for other purposes. Due to delayed project inception and since the archive building was no longer fit for use, it became necessary to lease another building in order to store the pension files for a longer period of time. This causes additional expenditure of €1.7 million annually.

In October 2006, the governing board of the German Federal Pension Insurance opted for the electronic archiving of four million pension files, equivalent to one third of the total number of files held. The reason was that the archive building required renovation and that the Federal Pension Insurance intended to use the premises for other purposes. Electronic archiving was to be performed by redundant staff of the Federal Pension Insurance, whose employment could not be terminated at short notice. Therefore, the Federal Pension Insurance assumed that the project could be carried out without any additional burden on its budget.

At the same time, the Federal Pension Insurance intended to introduce electronic case processing. This was later to be extended to the processing of pension claims. Therefore, it had to take numerous fundamental decisions, delaying the start of electronic archiving of pension files. Meanwhile, it nearly terminated the employment of nearly all redundant staff. Therefore, electronic archiving was not done to the extent originally planned. As a result, the Federal Pension Insurance leased a new archive building in August 2010. The annual rent for these premises is €1.7 million and they are expected to be used for about ten years.

We pointed out that neither the executive directors, who are responsible for the day-to-day management of the Federal Pension Insurance nor the governing board paid adequate attention to electronic archiving. They determined procedures and responsibilities for this project either not at all or belatedly. They did not effectively intervene when delays occurred. Had they done so, the lease of another building for the storage of pension files could have been avoided.

The Federal Pension Insurance should without delay develop an overarching strategy assigning responsibilities for the electronic recording and processing of its pension files and imposing deadlines and reporting duties vis-à-vis the governing bodies.

 

2012 Annual report No. 34 - Common strategy for German Pension Insurance public relations work is lacking

The public relations work of the German Pension Insurance is not based on a common strategy. There is a lack of clearly visible goals. We expect the pension insurance bodies to re-target their public relations activities and to visibly organize them more in line with actual needs and the requirements of cost-effectiveness. The Federal Social Ministry and the Federal Insurance Office should monitor this process in their capacity as sponsoring government departments.

Since a restructuring exercise in 2005, the bodies that administer the statutory pension insurance system are to coordinate and jointly steer their public relations activities through their umbrella organization German Federal Pension Insurance. By consolidating public relations in the field of pension insurance, the Legislature intended to improve the information of the public about the pension system which is governed by uniform nationwide provisions.

We found that the public relations activities of the pension insurance bodies lack clearly identifiable goals and consistency. It is questionable whether public relations activities are designed in line with actual needs and the requirements of cost-effectiveness. The pension insurance bodies use media without coordination and partly duplicate work for the same purpose. While the Federal Pension Insurance has announced that the pension insurance bodies intend to develop goals and strategies for coordinated public relations and to review the use of media under criteria of cost-effectiveness, it does not appear that all pension insurance bodies are ready to combine their efforts in this field.

We expect the community of pension insurance bodies to target their public relations work in line with actual needs and in a cost-effective way through their umbrella organisations Federal Pension Insurance. We call upon the Federal Social Ministry and the Federal Insurance Office to monitor this process in their capacity as sponsoring government departments.

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