Changes in the Partial Retirement Law

On 1 January 1998, new legal provisions came into effect in Germany which include a variety of measures to improve the social security provisions for flexible working time arrangements, and to allow for easier application of the Partial Retirement Law.

In December 1997, the Federal Government agreed on a bill which includes a variety of measures to improve the social security provisions for flexible working time arrangements and to allow for easier application of the Partial Retirement Law (DE9710133F). The new law came into effect on 1 January 1998.

According to German social and labour law, social security liability is tied to the employment relationship on the precondition that labour is exchanged for pay. However, a number of "working time account" models which have been introduced with the aim of achieving greater flexibility provide that in certain periods the employee does not need to work although he or she receives pay for work done in other periods. The new law extends social security coverage to employees in periods of release from work.

In order to provide incentives to maintain jobs and to hire new unemployed recruits, the new law eases the application of the Partial Retirement Law. This 1996 legislation enables employees aged 55 or older to move to half-time work for up to five years - the distribution of working time over the years until retirement is up to the parties to the employment contract. Employers have to pay the workers involved at least 70% of former net full-time income (and pay 90% of a full-time worker's pension contributions). The conditions for implementation of partial retirement are to be determined either by collective agreements, works agreements or individual employment contracts. The provisions of the new law regarding partial retirement are as follows.

  1. The distribution period within which companies are allowed, without being covered by collective agreements on the issue, to split the partial retirement period into periods of work and of release is extended from one to three years. The general distribution period is extended from five to 10 years.
  2. The requirement for a collective agreement remains for all partial retirement schemes lasting more than three years. However, the parties to the agreement are allowed to include opening clauses for works agreements. If one company makes use of the opening clause, all companies in the industry concerned are treated equally, ie companies which are not subject to collective agreements are allowed to conclude works agreements on partial retirement within the framework of the opening clause.
  3. In jobs where collective agreements do not usually regulate the distribution of working time, works agreements and individual contracts on partial retirement are permitted.
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