ARTICLE · 08 MARCH 2023

Optimizing Severance Pay To Finance Early Retirement

Littler Mendelson

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Providing pension contributions to the German state pension scheme instead of making severance payments can be an attractive alternative for the employer and employee.

GermanyEmployment and HR

Stefanie Reiche

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Providing pension contributions to the German state pension scheme instead of making severance payments can be an attractive alternative for the employer and employee.
Employees benefit by longevity risk coverage for early retirement, and employers enjoy a significant tax exemption.

Little known and therefore little used in Germany is the option of providing pension contributions instead of severance pay. If an employee has plans to retire early, or if a mutually agreed termination of the employment relationship is intended specifically to facilitate an early transfer to retirement, voluntary contributions to the German state pension scheme instead of a severance payment can be an attractive alternative.

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