Business-Blog | adesso insurance solutions

Concept for a state-of-the-art pension accounting software

Written by Jens Gustenhoven | Nov 23, 2023

The administration and accounting of company pension benefits often requires a great deal of administrative effort. In addition to the various implementation channels - usually in combination - different types of pensions such as old-age pensions, widows' pensions, half and full orphans' pensions and occupational disability pensions must also be accounted for. But this is just the tip of the iceberg. As a company, you must adhere to legal requirements and coordinate the exchange of data with tax authorities and health insurance companies. Beneficiaries are also expected to make punctual and error-free payments.

The options for pension accounting software are quite limited. This is why software from large payroll providers is often used for pension accounting. However, this is not specifically designed for settling company pensions. The result is that functions that are not needed at all have to be licensed, which in turn results in unnecessary costs.

In addition, pension accounting often has to account for very large portfolios, which means that settling can take several hours before you know it.

But which functions and features are really important in pension accounting software for meeting the challenges described above?

Requirements for state-of-the-art pension accounting software

The most important requirement right from the start: pension accounting software must calculate the pension payments to be accounted for accurately and efficiently, and meet the legal requirements. The corresponding GKV certificate provides legal certainty, without which pension accounting software is not approved in Germany.

The software must also be equipped to handle and account for internal and external implementation channels in different ways. In the case of internal implementation channels, the employee's entitlement to benefits acquired with the conclusion of the company pension plan is oriented around the employer, whereas in the case of external or insurance-based implementation channels, the entitlement to benefits is oriented around the company providing the pension.

For the benefit phase, i.e. the phase in which the company pension is paid out to recipients of a company pension, the legislator has stipulated that health and long-term care insurance contributions as well as wage and church tax, and solidarity surcharge, must be paid for the company pension - regardless of the respective implementation channel.

Differences between internal and external implementation channels

Apart from other differences, internal and external implementation channels differ due to the legislature's approach to taxation. While the internal implementation channels' pension payments are assessed as subsequent income from employment - Section 19 of the Income Tax Act - those from the external implementation channels are assessed as other income in accordance with Section 22 of the Income Tax Act. This is significant with regard to settling company pensions with the respective pension providers, as, in accordance with paragraph 19, they only have to calculate and pay taxes for company pensions. Company pensions from external implementation channels, on the other hand, are handled as part of the pensioner's personal income tax assessment, i.e. the pension providers do not have to calculate or pay taxes for this group. In short, pension accounting software must be able to account for both internal and external implementation channels.

It is also important to ensure that all types of company pension benefits can be accounted for:

  • Old-age pensions
  • (Partial) capital payments
  • Survivors' pension
  • Reduced earning capacity pension
  • Death benefits
  • Remuneration in kind
  • Advance and special payments

After the settlement has been completed, certain settlement features must be transferred to the portfolio management system. A SEPA file for the payment of taxes, social security contributions and net pension should also be provided by the payment system.

Control all processes

The software also needs to be high performance in order to quickly process large numbers of pension recipients. In addition, it should be tailored precisely to the specific needs of pension accounting.

It is also easy to use the solution to control all processes for settling and paying company pension benefits, and business transactions can be fully automated in compliance with all legal requirements.

It goes without saying that the clerks must be able to operate the system intuitively, ideally via a web front end.

However, the system for reporting to the authorities is also becoming increasingly complex. For this reason, the pension accounting software must be able to transfer relevant accounting features to health insurance funds and tax authorities in a way that is as automated as possible, after the accounting process has been completed. The following procedures are part of the official communication required for the settlement of company pensions with regard to tax:

  • ELSTAM procedure
  • Income tax return
  • Income tax certificate
  • The pension withdrawal notification procedure

The reporting procedures in the area of social security insurance include the following procedures:

  • Proof of contribution procedure
  • Paying agent notification procedure

Overview of the basic features of state-of-the-art pension accounting software

Here is a checklist of the basic features that standard software should have:

  • Settlement of widow's, half and full orphan's pensions and disability pensions.
  • Settlement of all implementation channels - can combine them as well
  • Control of all processes for settling and paying company pension benefits and fully automating business transactions in compliance with all legal requirements.
  • Accounting for all implementation channels - can combine them as well
  • Consideration of death benefits, advance payments and special payments
  • Retroactive correction option for up to 5 years
  • Conversion of garnishments through an integrated garnishment module
  • Wage account for every company pensioner and each calendar year.
  • Generation of SEPA or foreign payment files for the payment of tax, social security contributions and net pension
  • Reporting tool for handling the system for reporting to the authorities

Advantages of state-of-the-art standard billing software

The use of standard software is a good way to generate the associated benefits. Here the most important factors are investment protection and cost savings through technological development, and the mapping of legal and regulatory changes as part of maintenance. As replacing pension accounting software involves a great deal of effort for HR administrators in addition to their existing day-to-day responsibilities, the software should not be replaced too often. Here, standard software can really shine with relevant future security, as it is generally used by large networks of users, and the software is based on future-proof technology and can be released.

Additional advantages of standard software:

  • Facilitate communication between all persons and institutions involved in settling company pension schemes
  • Simple integration into an existing IT landscape
  • Time relief and capacity creation make for an original personnel management system
  • Flexible connection to existing peripheral systems via standardized interface adapters
  • Future-proof, as it has the latest technology and standard software
  • Release capability and availability in the cloud
  • Legal certainty through an annual audit
  • Scalability through the settling of large portfolios within in a short timeframe.

Would you like to learn more about this topic? Have a look here: https://www.adesso-insure.de/penpay Our expert Jens Gustenhoven, Senior Business Developer, will be happy to advise you.