Reform of the German Occupational Pension Act (“Betriebsrentengesetz”)

Effective January 1, 2018, the German Occupational Pension Act will be reformed by the Act to Strengthen Occupational Pensions (“Betriebsrentenstärkungsgesetz“), adopted by the German Parliament on 1 June 2017.

In 2002, the German legislator issued a difficult challenge to the area of occupational pension provision with the introduction of the so-called “Riester Reform”. Together with the subsidised private “Riester pension”, occupational pensions were intended to compensate for the cuts to state pensions that had already been decided. The rationale was to keep the pension levels of future generations of pensioners stable. However, take-up of both the “Riester pension” and occupational pension provision has been insufficient and remains so.

The Act to Strengthen Occupational Pensions constitutes a renewed, concerted effort to swiftly facilitate, with the help of the so-called social partners, i.e., trade unions and works councils, widespread and efficient occupational pension schemes in those workplaces where take-up has thus far been traditionally low, namely in small and medium-sized enterprises (SMEs).

The new Act, with its so-called “social partner model”, creates exclusive flexibility for signatories to collective agreements. The introduction of a pure defined-contribution scheme enables employers to have, for the first time, limited liability and absolute cost certainty with regard to occupational pensions. Moreover, in future it will be possible to include entire workforces in an automatic salary sacrifice or deferred compensation pension plan without the express written consent of each individual employee (“auto-enrolment with the right to opt-out”).

Overall, this results in remarkable flexibility for the companies in question, though it also requires intelligent consideration of any pension arrangements that may already be in place.