During the pandemic many changes occurred, and short-time work allowance and unpaid leave support were among the most discussed topics. Another important issue that should not be overlooked affects retirees and those approaching retirement: the long-discussed severance pay fund has returned to the agenda.
What to Expect from the Severance Pay Fund?
First, it should be noted that the idea of a severance pay fund has surfaced in different forms for years without being implemented. Studies and public opinion surveys indicate that current mechanisms are insufficient to ensure that the rights and obligations between workers and employers are consistently fulfilled. Available data suggest that the rate at which severance pay is actually paid ranges between approximately 9% and 14%.
Current proposals essentially create a complementary pension-like system. If adopted and implemented—for example in 2021—this system would cover all workers by integrating them into a supplementary retirement scheme.
Under the proposed model, severance pay entitlements accrued over at least one year of employment would be calculated using a rate equivalent to 8.33% of gross wages. The aim is to establish the compensation amount on this basis in the new arrangement.
Under the Employment Shield Package being considered, the worker’s gross salary remains the main basis for the calculation. A 3% deduction from gross wages is proposed, but this deduction would not reduce the worker’s net pay; instead it would be treated as an employer-side contribution. The employer would deduct 3% of the employee’s gross salary each month and transfer those funds to designated intermediaries as contributions to the complementary pension system.
Of the 8.33% benchmark, the monthly 3% portion would be regularly redirected by the employer into the complementary pension system under the governing law. The remaining 5.33% would continue to be the employer’s responsibility as before. When calculating severance pay using a one-month period set to 30 days, the 3% annualized deduction corresponds to approximately 11 days and the remaining 5.33% to roughly 19 days. Thus, the employer would cover the 11-day portion through the 3% deduction directed into the pension scheme, while the remaining 19-day severance entitlement would remain the employer’s obligation.
Paid on Top of the Pension
The employee would receive the amounts accumulated through the 3% contributions to the complementary pension system after retirement—typically at age 60—paid in addition to their regular pension. Although this is the dominant proposal, the system also poses practical challenges in key areas. Employees could elect to take 25% of the accumulated severance fund balance as a lump sum and leave the remaining balance to be paid as part of their retirement income, rather than receiving monthly disbursements.
In cases such as first-time home purchase, marriage or severe illness, workers would be allowed to withdraw part of the accumulated funds. Withdrawals would be limited: under current proposals up to 10% of the fund could be accessed in these exceptional circumstances, while withdrawals outside these exceptions would not be permitted.
Minor revisions to the system are also anticipated. For example, employee contributions proportional to the employer’s share could be calculated at ratios such as 1.5 or 2 times the base rate, which—if implemented—would reduce the employee’s net pay. These design choices remain under discussion as policymakers refine the proposal.