Occupational Pensions: Partial retirement is to be treated as part-time work

By judgment of 21 January 2020 (docket number: 3 AZR 281/18) the Federal Labour Court (Bundesarbeitsgericht – BAG) has ruled that for the calculation of pension benefits partial retirement (Altersteilzeit) is to be treated as part-time work (Teilzeitarbeit).

The employer and the former employee were in dispute over the question of whether periods of partial retirement must be treated as part-time work and, thus, should be assessed with a part-time factor as determined in the pension plan. The plaintiff was granted a pension commitment which stated that the pension benefit level was to be reduced pro rata for periods of part-time work. It did not include any particular provision referring to periods of partial retirement. The plaintiff participated in a partial retirement scheme, where the working hours had been reduced by 50%. When calculating the pension, the employer treated this reduced working time as part-time and, as a result, reduced the pension benefits accordingly on a pro rata basis.

The plaintiff argued that the provision for part-time work in the pension commitment does not apply to periods of partial retirement. It was therefore unlawful to reduce his pension benefit level.

The Federal Labour Court rejected that view and dismissed the action. The court found that the wording of the pension commitment was clear. Referring to its established case law, the court stated that partial retirement is a special form of part-time work. As a consequence, the provision for part-time work in the pension commitment also covers the case of partial retirement. Furthermore,  there was already a law on partial retirement when the pension commitment was granted. The fact that the parties nevertheless did not include a special provision for partial retirement in the pension commitment suggests that partial retirement should not be treated differently from part-time work.

The decision will be welcomed from an employers’ perspective. However, in order to prevent disputes, it is recommended that a pension scheme should always include specific provisions on whether partial retirement should be treated as part-time or full-time work.