Insurance sector agreement on partial retirement and additonal pension entitlements

In March 1999, the social partners in the German insurance industry concluded a comprehensive collective agreement, which includes provisions on remuneration, partial retirement, maintenance of jobs, vocational training, working time flexibility and additional pension entitlements.

On 20 March 1999, after four rounds of negotiations, the social partners in the private insurance industry - the insurance employers' association (Arbeitgeberverband der Versicherungsunternehmen in Deutschland, agv), the commerce, banking and insurance workers' union (Gewerkschaft Handel, Banken und Versicherungen, HBV) and the German White-Collar Workers' Union (Deutsche Angestelltengewerkschaft, DAG) - struck a collective agreement which covers 220,000 employees. The agreement runs for 15 months until 31 March 2000. It includes provisions on pay increases, a lump-sum payment for salaried employees, partial retirement, an "opening clause" allowing voluntary works agreements to reduce working hours and increase working time flexibility, employment security, and vocational trainees.

The agreement attracted widespread public attention for its provisions on partial retirement and company-level additional individual pension entitlements. Both provisions should be seen in the context of the current discussions on including the issue of pensions in collective agreements, initiated by Walter Riester, the Federal Minister of Labour, who has proposed the establishment of collective pension funds (Tariffonds) by collective agreements.

The agreement's provisions

Retirement at 60

The major part of the insurance sector collective agreement relates to partial retirement. Its provisions should be seen against the background of the 1996 changes in the legal provisions on partial retirement, when the Federal government introduced a new Partial Retirement Law (Altersteilzeitgesetz), coming into effect on 1 August of that year, which aimed at the reduction of unemployment and the creation of jobs for younger job-seekers (DE9710133F). Under this legislation, the Federal Employment Service (Bundesanstalt für Arbeit) financially supports the gradual transition of employees aged 55 and over to retirement, if the employee voluntarily reduces his or her working time to 50% of normal hours, and if the resulting vacancy is filled by the recruitment of an unemployed person or a trainee. The distribution of working time over the years until retirement is up to the parties to the employment contract - for example, the employee may work full-time for the first half of the period before retirement, and then be fully released from work for the remainder. If the employer increases the remuneration of employees in the scheme to 70% of former full-time remuneration and pays contributions to pension schemes on the basis of 90% of former full-time remuneration, the additional expenses are borne by the Federal Employment Service. According to §3 I of the Partial Retirement Law, the implementation of its provisions require either a collective agreement, a works agreement or an individual contract between employer and employee (DE9801146N and DE9708224F).

The relevant part of the new insurance sector agreement - entitled "Retirement at 60" (Ruhestand mit 60) - includes the following provisions:

  • all employees are given a legal entitlement to enter a six-year early partial retirement period - rather than the existing "standard" five-year period - at the age of 57, so that the period of full release from work, following three years of full-time work, may start for both male and female employees at the age of 60 (this three years on/three years off model is compulsory for those entering the scheme). This provision is valid for all employees who finish their 57th year after 31 March 1999 and before 1 January 2002;
  • the employers will compensate for half of the reduction in the pension entitlements of the employees concerned, up to a maximum of 7.2 percentage points; and
  • the provisions for the "standard" form of partial retirement (with a maximum duration of five years), agreed on 11 June 1997, are extended until 31 July 2004.

Additional pension entitlements

The most interesting section of the agreement relates to additional individual pension entitlements at company level, known as "pension commitments" (Pensionszusagen). Under such a scheme, employees may "sacrifice" some elements of current pay, which the employer then invests in capital (eg shares in the employing company) and pays out when the employee reaches retirement age. The agreement states that: "Salaried employees may partially or totally sacrifice future remuneration, especially collectively agreed bonuses, overtime pay and capital-forming payments under the employees' saving scheme", if two conditions are met:

  1. there is compensation for this remuneration sacrifice in form of an individual capital pension "commitment" on the part of the employer, with the capital paid when the employee reaches a certain age (which is to be determined in the pension commitment) or in the event of death before reaching this age, paid to an eligible spouse or children. Works agreements may provide for other forms of commitment, whereby the employee sacrifices other elements of pay to fund the scheme; and
  2. the employer provides that the individual capital pension commitment does not expire when the employee concerned dies, but that these entitlements to receive capital are fully transferred to the surviving dependants.

Furthermore, all salaried employees who - by 31 December 1999 - declare their willingness to sacrifice up to 26.5% (with a minimum of DEM 500) of the collectively agreed bonus (which amounts to roughly 0.5% of annual remuneration) due in the second quarter of the year 2000, in order to contribute to the additional pensions entitlements scheme, will receive financial support from the employer equivalent to the sacrifice (with a maximum of DEM 1,000). This financial incentive applies only to employees who have not completed their 57th year by the second quarter of 2000. A different time frame and other types of sacrifice may be agreed by voluntary works agreement. Other pension commitments based on employees sacrificing pay which may already exist at establishment level, are to be harmonised in future.

In their previous 1997 employment conditions framework agreement, the insurance social partners had already introduced a pension commitment in exchange for wage sacrifices. The sector's employers regard the agreed pension commitment system as pointing the way for all German companies, as it is based on collective agreements, financed by a funded scheme, and would not place the burden on the younger generation.

Other issues

The agreement extended the previous pay agreement, concluded on 4 July 1997, until 31 March 1999. With effect from 1 April 1999, pay is increased by 3.2%, while a lump-sum payment for salaried employees of DEM 350 will compensate for the first three months of 1999 when there were no wage increases.

As of 1 January 1999, monthly pay for vocational trainees will be increased by DEM 30 for first-year trainees, by DEM 40 for second-year trainees and by DEM 45 for third-year trainees.

Furthermore, the employers have committed themselves to negotiating all issues relating to working time with the unions. The social partners also extended: the "opening clause" in the framework agreement on employment conditions which allows the conclusion of voluntary works agreements on the collective reduction of working time; and the 1995 collective agreement on the introduction of working time flexibility until 31 December 2001. Finally, the social partners agreed to negotiate on working time issues in order to maintain jobs, and issued an appeal to companies in the sector to increase the number of vocational trainees by 5% in 1999.

The current discussion on collective pension funds

In 1998, Walter Riester, the Federal Minister of Labour, proposed the establishing of "collective pension funds" (Tariffonds) by collective agreement to counteract likely reductions in pension levels under the statutory system and to strengthen pensions provision generally. According to Mr Riester, collective agreements should include provisions that a certain share of gross wage increases should be allocated to these collective pension funds. In such funded schemes, contributions could be invested in a variety of assets, the return on which would be credited to the members. The assets of the funds should be based on the contributions and the returns. However, as such a system would make sense - in terms of effectiveness for the economy and social security - only if all employees were included, Mr Riester suggested that collective agreements on the subject should be declared generally binding for all employers and employees in a sector, whether or not they were members of the signatory organisations.

Subsequently, the metalworking sector trade union, IG Metall, issued its own proposal, the major difference being that employers and employees should share the contributions to the funds instead of employees bearing the burden alone. The employers fiercely reject collective pension funds on the grounds that they would be unable to meet the necessary requirements for reforming the statutory pension system and would place too many demands on collective bargaining, especially when there would be an additional financial burden to bear by the employers.


Against the background of an ageing workforce and population, and the resulting negative consequences for the statutory "pay-as-you-go" pension system (whereby those currently in employment pay for the pensions of those currently in retirement), which is increasingly coming under strain due to demographic developments, controversial discussions on reforming the pensions system are underway in Germany.

The new agreement for the insurance industry has to be seen in this context. In the current German pensions system, which is made up of individual provisions, company pension schemes, collectively agreed supplementary benefit funds (Zusatzversorgungskassen) - as are found, for example, in some parts of the construction sector - and the statutory social security system, the new provisions on "pension commitments" strengthen the individual "pillar". However, the scheme does not go as far as introducing a collective pension fund, as proposed by the Federal Minister for Labour.

The insurance agreement has a double function. First, it allows employees to enter partial retirement at the age of 57 and full retirement from 60. Second, it provides for a pension commitment system, which might also be regarded as incentive to retire. The general idea behind such collectively agreed pension commitments is that employees should be given the option to take action against likely cuts in benefit levels in the statutory pension system and possible reductions in entitlements arising from company pension schemes. Furthermore, the employer contribution provides a further incentive for employees to agree to such commitments and the related reductions in gross pay.

The issue of pensions in collective agreements is also under debate in other sectors. A 1998 collective agreement in the chemicals sector, which took effect from 1 January 1999, included the provision that employees have an option voluntarily to allocate DEM 936 per year either in capital-forming investment under the employees' saving scheme or to company pension schemes. Currently, the establishment of additional collective pension funds (tarifliche Zusatzrente) is an issue in collective bargaining in the construction industry. (Stefan Zagelmeyer, IW Köln)

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