Collective agreements on partial retirement

Partial retirement has become an important new issue in the 1997 German collective bargaining round. Provisions on partial retirement have been concluded in 11 branch-level collective agreements and several company agreements, covering nearly 2 million employees. However, recent negotiations on partial retirement in the metalworking industry were broken off before any conclusions had been reached.

Against the background of increasing mass unemployment in Germany, early or partial retirement has become an important instrument for companies to avoid redundancies or even create new jobs for young job-seekers. In the first half of the 1990s, a continuously growing number of older employees used the option of early retirement on a state pension at the age of 60 after 12 months' unemployment (the normal age of retirement is currently 65 for both sexes). In practice, this meant that employees became voluntarily unemployed at the age of 58 or 59 and received unemployment benefits (mostly topped up by additional payments through their former companies) before retiring early at the age of 60. However, this early retirement practice created a growing financial burden on the German social security system (both the unemployment insurance and the statutory pension scheme s). In addition, companies were widely accused of reducing their workforce with the aid of state subsidies.

On 23 July 1996, the Government replaced existing early retirement practice with the adoption of new partial retirement (Altersteilzeit) legislation (Altersteilzeitgesetz). Early retirement at 60 is now available to employees who have worked for at least 24 months under a special part-time scheme. Over the period up to 1999, the minimum age limit for early retirement will be further raised to 63. Under the new law, employees aged 55 or older are able to move to half-time work, or at least 18 hours a week, for up to five years. Employers have to raise the part-time income of the workers involved by at least 20% to a minimum of 70% of the former net full-time income. Employers also have to pay at least 90% of a full-time worker's pension contributions in respect of the . Finally, the new law contains a provision that employers who are using partial retirement for the creation of new jobs for trainees or unemployed people, can receive compensation for their additional costs from the Federal Employment Service (Bundesanstalt für Arbeit).

An overview of collective agreements on partial retirement

According to the partial retirement law, the concrete conditions for implementation of partial retirement should be determined either by collective agreements, by works agreement s or by individual employment contracts. A recent inquiry by the Institute for Economics and Social Science (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) concludes that provisions on partial retirement have since been reached in 11 branch-level collective agreements and several company agreements, covering nearly 2 million employees. The first collective agreement had already been concluded in the west German chemical industry in expectation of the forthcoming new law in February 1996 (DE9704108F). Since then collective agreements on partial retirement had been reached in the glass, rubber, ceramic, plastic, paper and cement industries as well as in banking (DE9706219N) and insurance, and very recently in the energy sector.

Table 1: Branch-level collective agreements on partial retirement
Branch Income during partial retirement Contributions to pension scheme during partial retirement Compensations for cut in pensions
Chemical industry (west Germany) 40% increase in the part-time income to a minimum of at least 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.
Glass industry 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.
Concave glass industry (Rhine-Weser-Region) 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.
Rubber industry (west Germany) 40% increase in the part-time income to a minimum of at least 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.

Source: WSI Collective Agreement Archive 1997

In addition, a number of company agreements had been concluded, for example at Volkswagen (DE9707221F), PPS (DE9706120N), Preussen Elektra and Deutsche Bahn AG.

Table 2: Company agreements on partial retirement
Company Income during partial retirement Contributions to pension scheme during partial retirement Compensations for cut in pensions
Volkswagen AG 85% of net full-time income. 100% of a full-time employee's contribution. 50% compensation.
PPS Personal-, Production- und Service GmbH (Preussag Stahl AG) 85% of net full-time income. 100% of a full-time employee's contribution. Up to 25% compensation.
Preussen Elektra Gruppe 20% increase in the part-time income to at least 85% of net full-time income. 100% of a full-time employee's contribution. No compensation.
Deutsche Bahn AG 20% increase in the part-time income to at least 85% of net full-time income, or to a minimum of 75% plus partial compensation for the cut in pensions. 90% of a full-time employee's contribution. Partial compensation possible.
Deutsche Lufthansa 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.
Esso AG 40% increase in the part-time income to at least 85% of net full-time income. 90% of a full-time employee's contribution. Partial compensation.
RWE-DEA AG 40% increase in the part-time income to at least 85% of net full-time income. 90% of a full-time employee's contribution. No compensation.
Gemeinützige Paritätische Sozialarbeit GmbH 25% increase in the part-time income to at least 70% of net full-time income 95% of a full-time employee's contribution. No compensation.

Source: WSI Collective Agreement Archive 1997

In comparison to the former practice of early retirement, the new legal provisions on partial retirement are much less attractive to older employees, because they will lose a relatively high proportion of their pay and pensions. As a result, only about 4,500 employees have applied for partial retirement since the introduction of the new law. Considering this, most of the collective agreements foresee significant improvements for the employees who opt for partial retirement:

  • most collective agreements guarantee an income during partial retirement of at least 85% of net full-time income, instead of the 70% which had been prescribed by the law;
  • some company agreements (eg at Volkswagen, PPS or Preussen Elektra) guarantee 100% of a full-time employee's contribution to the pension scheme, instead of the 90% prescribed by law; and
  • some collective agreements foresee a compensation for the possible cut in pension entitlement - for example, at Volkswagen and in the energy sector, the employers will compensate 50% of the possible cuts.

Concerning the concrete implementation of a partial retirement scheme, most collective agreements prefer the so-called "block model". This means that, over a period of five years from the age of 55, older employees continue to work full-time in the first two and a half years and then stop working in the second two and a half years. During the whole five-year period, the employee receives the reduced partial retirement income. Alternatively, many collective agreements also foresee the possibility that older employees will work part-time (at the legal minimum of 18 hours per week) during their last working years.

A controversial point in collective bargaining on partial retirement was often the question whether or not older employees should have a "right to work under partial retirement". Most collective agreements limit the right of partial retirement to between 3% and 5% of their entire workforce. Some agreements do not mention an employee's right to partial retirement or, as for example in the energy sector, explicitly state that the employer can choose voluntarily whether or not to introduce partial retirement.

Failed negotiations in the metalworking industry on partial retirement

Negotiations in the metalworking industry on partial retirement started in January 1997 at national level between the metalworkers' union, IG Metall, and the metalworking employers' association, Gesamtmetall. During those negotiations. IG Metall presented its own model of partial retirement, which includes:

  • a "block model" for a period of between eight and 10 years. Employees should work full-time from the age of 55 until 59 or 60, and then stop working until retirement at the age of 63 or 65. During the whole period, the employee would receive the reduced partial retirement income;
  • the income of the employee should be at least 85% of the net full-time income (as has been agreed in chemicals and other industries);
  • a part of the additional wage cost should be paid by the Federal Employment Service (a provision which would make further changes in the partial retirement law necessary);
  • the employers should pay 100% of a full-time employee's contribution to the pension scheme;
  • employers should compensate for possible cuts in pensions in the event of early retirement; and
  • at least 5% of the workforce should have the right to work under the conditions of partial retirement.

Gesamtmetall sharply rejected IG Metall's proposal as too expensive, and instead proposed a solution which came much closer to the recent legal provisions. The metalworking employers also did not agree to an employee's right to work under partial retirement. On the contrary, Gesamtmetall wanted to leave the decision whether or not to introduce partial retirement to individual companies. Gesamtmetall finally proposed the introduction of an "opening clause" in the collective agreement on partial retirement, allowing companies to introduce different partial retirement models.

Due to the contrary positions between the collective bargaining parties, IG Metall broke off negotiations at national level in April 1997 but continued negotiations at regional level in its Nordwürttemberg-Nordbaden district. However, the political differences seem to be unbridgeable at the moment. Even the conclusion of a company agreement on partial retirement at Volkswagen in June 1997 could not help to find a compromise. While IG Metall praised the Volkswagen agreement as an excellent example, Gesamtmetall immediately declared that the agreement could not be transferred to the whole sector, because in its view it is too expensive. Finally, on 2 July 1997 IG Metall's regional collective bargaining commission declared the failure of the negotiations and announced that it will examine the possibility of industrial action in autumn this year.

Commentary

Partial retirement could become an important instrument in the fight against growing mass unemployment in Germany, because de facto it is a further step to necessary (lifetime) working time reduction. However, the conditions for partial retirement must be socially acceptable, otherwise older employees would have no motivation to provide younger colleagues with jobs. In practice, it has been proven that the provisions of the partial retirement law are not sufficient at all and that there is an urgent need for the Government to improve the legislation.

However, it is a good sign that a growing number of collective agreements have been concluded, and most of them substantially improve the social situation for employees working under partial retirement. In particular, the company agreement at Volkswagen showed a socially acceptable way to introduce partial retirement, even in the metalworking sector. In the interests of unemployed people, one must hope that the metalworking collective bargaining parties will also finally follow that path. (Thorsten Schulten, Institute for Economics and Social Science (WSI))

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