The Effects of Low Interest Rates on Corporate Pension Provisions in Germany

Hentze Tobias

Tobias Hentze IW-Trends No. 3 1. August 2016 The Effects of Low Interest Rates on Corporate Pension Provisions in Germany

Tobias Hentze IW-Trends No. 3 1. August 2016

The Effects of Low Interest Rates on Corporate Pension Provisions in Germany

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The zero interest rate policy of the European Central Bank is placing a huge burden on company pension schemes. As a result, companies are being forced to increase provisions for their direct pension obligations to their workforce. However, far from taking appropriate account of this additional expense, the state is taxing fictitious profits resulting in a tax burden of some 20 to 25 billion euros. This is depriving companies of liquidity which could otherwise be invested. A lowering of the imputed interest rate for tax purposes would counteract this effect.

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