Pensioner employment and company pension schemes

1. Introduction

In view of the extensive demographic challenges in securing and transferring in-house expertise at the employer and the general shortage of skilled workers, pensioner employments are common in many companies. These employments are characterised by the fact that the employee already meets the requirements for drawing a statutory (retirement) pension for the first time, particularly with regard to the relevant retirement age, while continuing to work in an employment. For individual pensioner employees, they have also become (more) commercially relevant in recent times if, in view of the material increase in the cost of living in recent years, mainly due to inflation, they are dependent on additional income in addition to the statutory pension and company pension scheme even after reaching the relevant age limit and must therefore continue to work in an employment. Since 1 January 2023, the pensioner-employment has also been more attractive from a fiscal perspective for pension recipients with an early statutory retirement pension, as the legislator has finally abolished the additional earnings limit with regard to the offsetting of other income against statutory pension benefits.

2. Starting point: Classification of the company pension commitment in terms of financing, specific benefits and implementation path; contractual partner in the pensioner-employment

From a practical point of view, the classification of the company pension commitment is decisive for the labour law implications in the individual case:

• Financing: Employers generally have a wide scope for structuring the content of an employer-financed company pension commitment, which extends, among other things, to the conditions for the receipt of benefits, the amount of benefits and the qualifying periods associated with the amount of benefits, which they can also use for the employee's company pension commitment in a pensioner employment. In contrast, in company pension commitments based on deferred compensation - even considering the statutory minimum employer contributions in accordance with Section 1a (1a) of the German Company Pensions Scheme Act (Betriebsrentengesetz, BetrAVG) - there are restrictive limits to the options for structuring the content, as the relevant company pension benefits are essentially financed from the converted remuneration components from the employment.
• Implementation path: In the case of company pension commitments in the pension fund (Pensionskasse) implementation path, the insurance supervisory regulations stipulate that pension benefits are only to be granted by the pension fund from the time of the cessation of earned income (Section 232 (1) No. 2 of the German Insurance Act, (Versicherungsaufsichtsgesetz, VAG), so that the parallel granting of retirement benefits and remuneration from a pensioner's employment, for example, is out of the question for this implementation path. The further company pension schemes implementation paths (direct commitment, provident fund, direct insurance, pension-fund (Pensionsfonds)) do not provide for such a restriction.
• Specific benefit: Pension benefits in the form of capital payments extend to a one-off payment or, in the case of instalment capital payments, to the period of the instalment payments. They are only affected by some of the issues discussed in this Client Alert, whereas company pension commitments with pension benefits must regularly be considered in their entirety with regard to the implementation of the pensioner-employment.
• Contractual partner in the pensioner employment: From a practical point of view, the employee often implements the pensioner employment with the employer who has also issued the relevant company pension commitment. Some of the issues discussed in this Client Alert also relate to pensioner employments in which the contractual employer is not the same person as the employer who made the company pension commitment.

3. Benefit case in the company pension commitment and pensioner employment: parallel receipt of remuneration and company pension benefits?

An important question for pensioners employees includes the possibility of parallel receipt of pension benefits from the company pension commitment (already) during the pensioner employment, especially if the contractual partner in the pensioner employment is the same person as the employer who granted the company pension commitment.

The starting point for this is the content of the company pension commitment:

• If the company pension commitment stipulates the termination of the employment with the employer of the pensioner's employment granting the company pension commitment as a prerequisite for benefits, the benefit event for the first receipt of the company pension benefits is postponed to the date of termination of the pensioner's employment. From a labour law perspective, such a provision is permissible regardless of the implementation path and can also be agreed for employee-financed company pension commitments.
  The provision in the employment contract is of no practical relevance if the contractual partner in the pensioner employment is not the same person as the employer making the company pension commitment. The employer granting the company pension commitment must also provide the pension benefits during the pensione employment.
• If the company pension commitment does not contain such a benefit condition of termination of the employment, the company pension benefits from the company pension commitment must generally be granted in addition to the remuneration from the pensioner's employment if the further conditions (in particular the relevant pensionable age) are met. This generally applies both in the case of retirement benefits due to reaching the standard retirement age and in the case of an early retirement pension.

In this context, a commercial decision must be made by employees for whom the individual company pension commitment determines the receipt of statutory retirement benefits as a prerequisite for benefits. From a social security law perspective, they can increase the amount of the statutory old-age pension by 0.5% for each month beyond their own statutory old-age pension limit in which they work as a pensioner and do not draw any statutory old-age pension benefits. In practice, the employment contract for the pensioner employment in these cases contains a declaration by the employee as to whether he or she will draw the statutory old-age pension during the pensioner employment. If the employee exercises the option to draw the statutory retirement pension during the pensioner employment, the employer will ask for the retirement pension certificate from the statutory pension insurance scheme to verify this benefit condition of the company pension commitment.

4. Possibility of vesting further entitlements during the pensioner's employment

The possibility of vesting further entitlements in the company pension commitment during the implementation of the pensioners employment also depends on the content of the company pension commitment:

• In the case of employer-financed company pension commitments, the employee can only earn further entitlements after reaching the retirement age specified in the company pension commitment if the company pension commitment expressly stipulates this. If, on the other hand, the pensioner employment is implemented before the retirement age specified in the company pension commitment is reached (= in the case of an early retirement pension), the company pension commitment must contain an explicit provision limiting the period relevant to entitlement (e.g. until the employee reaches the age of 63); otherwise the employee can also earn further entitlements during the implementation of the pensioner employment until the standard retirement age specified in the company pension commitment is reached.
• In the case of employee-financed company pension commitments, the employee cannot - unless otherwise agreed - earn any further entitlements from the company pension commitment once the statutory retirement age has been reached, as the deferred compensation entitlement under Section 1a (1a) BetrAVG requires an employment subject to statutory pension insurance. In contrast, the entitlement to deferred compensation under Section 1a (1a) BetrAVG is unconditional until the individual statutory retirement age is reached and can only be waived by collective agreements (Section 19 (1) BetrAVG).

5. Offsetting remuneration from the pensioner's employment against company pension benefits

Offsetting the remuneration from the pensioner's employment against the company pension benefits already granted under the company pension commitment during the pensioner's employment requires an explicit offsetting clause in the company pension commitment. Without an offsetting clause, offsetting is ruled out. If the company pension commitment contains such an offsetting clause, the following differentiation must be made for it to be valid:

• Offsetting is generally legally permissible in the case of employer-financed company pension commitments in which the employer's scope for determining the amount of the pension benefits from the company pension commitment also includes the possibility of offsetting other income of the beneficiary for the respective specific reference period and in this respect also has an effect regardless of whether the beneficiary carries out the pensioner employment with the employer granting the company pension commitment or with a third employer. Offsetting is subject to the general provisions of labour law and, in particular, the statutory provisions on general terms and conditions (Sections 305 et seq. of the German Civil Code (Bürgerliches Gesetzbuch, BGB)) on transparency control. In practice, it is often stipulated in this constellation in company pension commitments that determine a total pension for the employee, which in individual cases also - partially - include remuneration from the pensioner employment as part of the total pension.
• In contrast, offsetting is generally not permitted in the case of a company pension commitment financed by the employee through deferred compensation. The retirement provision saved by the employee through deferred compensation cannot be taken away from him by offsetting it against remuneration claims from the pensioner employment.

6. Adjustment of company pension benefits during the implementation of the pensioner-employment

Besides (and insofar irrespective) of the existence of the pensioner employment, the employer is generally obliged under Section 16 (1) BetrAVG (also) to review every 3 years an adjustment of the current benefits from the company pension commitments for the pension benefits already granted parallel to the pensioner employment, and must decide on this at its reasonable discretion, taking into account above all its economic situation and the interests of the pension recipient. The economic interest of the pensioner employee in maintaining the value of the pension benefits promised in the company pension commitment, which is primarily indicated by the inflation adjustment in accordance with Sec. 16 (2) no. 1 BetrAVG, does not have to consider other benefits received by the employee during the reference period, including any remuneration from the pensioner employment.

The specific adjustment test must be carried out based on the specific content of the company pension commitment. If the company pension commitment contains an individual adjustment provision, this is the starting point for the specific review. If there is a contractual adjustment clause with an annual adjustment of the pension benefits of 1%, a distinction must be made according to the date on which the company pension commitment was made. If company pension commitments were made after 31 December 1998, the employer can already fulfil the employee's adjustment claim with such a pension adjustment. A separate statutory adjustment is then no longer required (Sections 16 (3) no. 1, 30c (1) BetrAVG). It should be noted that this statutory adjustment relief only applies to company pension commitments that were first made after 31 December 1998. If the company pension commitment was already made before 1 January 1999 and already originally contained such a 1% clause or if the 1% clause was included in the company pension commitment for the first time after 31 December 1998 due to a modification of the company pension commitment, the employer must also carry out the statutory adjustment test in accordance with § 16 BetrAVG in addition to the contractual adjustment.

7. Conclusion

In practice, employers can harmonise pensioner employments and company pension commitments in line with requirements and implement regulations that are in the interests of the individual employees if they adhere to the rules set out in this Client Alert when structuring the content of the company pension commitments. If a reorganisation or modification of the existing company pension commitments is on the cards, it is generally advisable to use this from the employer's point of view to determine or readjust the desired framework parameters of a pensioner's employment for the first time.