Tax exemptions on German life insurance policy payouts are set to be scrapped from 2005, junior Finance Minister Barbara Hendricks said on Wednesday. The government has wanted to scrap the privileges on life insurance policies as part of a wider shake-up of the way pensions and retirement savings are taxed but had been forced to seek a compromise with the conservative opposition after its proposals were held up in parliament.
Under a deal in the parliamentary mediation committee, half the amount paid out from life insurance contracts that have lasted for at least 12 years will in future be liable for tax. Up until now, the benefits have been entirely tax-free and a limited amount of contributions have been tax-deductible.
Germany’s insurance industry has opposed the government moves to end the tax break on life insurance policies, arguing it would make Germany’s most popular long-term savings vehicle less attractive to consumers.