Germany: When is a New Hire too old to join a Company Pension Scheme?

by Orrick - Global Employment Law Group

In Germany, all employees are mandatorily covered by the statutory pension insurance which provides the main source of income during retirement. In addition, many companies grant company pension benefits to their employees, subject to the terms and conditions of the company pension scheme established for this purpose. The amount of the company pension payable after retirement increases with the length of service.

The provisions of several company pension schemes require that an employee, when entering into employment, must be younger than a defined age in order to become eligible for joining the company pension scheme (typically 45, 50 or 55 years); otherwise, membership is excluded. The ratio of such age limit is consistent with the practice that company pensions reward longstanding service and loyalty to the company which generally cannot be achieved by employees joining the employer at an older age.

Sec 10 No. 4 of the German Act on Equal Treatment (AÜG) expressly allows age limits in company pension schemes. However, the Federal Labor Court—the highest labor court in Germany—recently held that Sec 10 No. 4 of the AÜG does not allow any kind of age limit—and deemed the age limit of 45 as discriminatory and unlawful—whilst an age limit of 50 is acceptable.

On 18 March 2014, the Federal Labor Court (3 AZR 69/12) had to decide whether the provision of a bank’s company pension scheme, according to which a new hire must be younger than 45 years in order to become beneficiary to a company pension scheme was lawful. The claimant was older than 45 when she joined the bank; on retirement, the bank refused to pay a company pension by referring to the age limit in its pension scheme.

The Federal Labor Court judged that the age limit of 45 was age discriminatory and ordered the bank to pay out a company pension to the ex-employee. The court argued that, although the law accepts age limits in general, any age limit must be reasonable and justified in order to be valid. The court stated that a new joiner aged 45 could potentially work for 20 years for the employing bank until he/she reaches the normal retirement age in Germany. The court considered this as a considerable length of time and saw no justified reason to exclude this group of employees from company pension benefits.

It is now clear that company pension schemes cannot provide for an age limit of 45. The question, however, is which age limit is acceptable for the labor courts. Employers get some comfort from a second decision of the Federal Labor Court: On 12 November 2013, where the court held that an age limit of 50 years is acceptable (3 AZR 356/12). New joiners aged 50 or above could only work for about 15 years for the company until they retire—this potential period was not considered long enough to reward loyalty with a pension.

In conclusion, employers having a company pension scheme with an age limit of 45 (or below) should amend the terms and conditions of their pension schemes. Employers with pension schemes having an age limit of 50 (or above) are, however, on the safe side.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Global Employment Law Group | Attorney Advertising

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Orrick - Global Employment Law Group

Orrick - Global Employment Law Group on:

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