Partial retirement is intended to enable older employees to make a seamless transition from working life to a working pension. Under this clause, the employee's working time is reduced by half at the end of his working period before retirement. However, the pay is only reduced to (at least) 70 percent, so the actual half pay is increased by 20 percent (or more).
Until the end of 2009, the granting of partial retirement by the employer was financially supported by the Federal Employment Agency in that the 20 percent salary supplement was taken over under certain conditions.
In this context, the question often arises not only as to the use of partial retirement, but also as to the amount of compensation to be paid by the employer for early retirement.
2. Regulatory models for partial retirement
Partial retirement can be taken up in two ways: In the case of the part-time model, working hours are reduced by half over the entire period of partial retirement.
In the much more common block model of partial retirement, the duration is divided into two equal halves. In the first phase of work, the employee continues to work full time. In the second half (release phase), the employee no longer works at all.
Partial retirement is regulated by the Partial Retirement Act (AltTzG). The regulations of the Part-Time and Fixed-Term Employment Act (TzBfG) also apply to partial retirement.
3. Requirements for partial retirement
The age part-time can begin, who is already 55 years old and employee with their beginning. Freelancers and self-employed persons can therefore not claim partial retirement.
In the last five years before the start of partial retirement, employment subject to social insurance contributions must have existed for at least 1080 days. This includes periods during which sick pay, social security benefits, unemployment benefits or unemployment benefit II were received. Part-time employment is also taken into account on a calendar-day basis.
Partial retirement must also be taken immediately before the start of the pension; in case of doubt, the start of the pension entitlement should therefore be checked with the pension insurance company beforehand.
Partial retirement must be taken for a total of at least three years (in the case of the block model, both phases are added together). it will usually last no longer than six years, although longer periods (up to 12 years) are also conceivable.
There is no basic legal entitlement to partial retirement: however, an entitlement can often arise from a relevant collective bargaining agreement, a company agreement or even a provision in the employment contract. In the absence of such a regulation, the regulation of partial retirement is the responsibility of the employee and the employer, d.h. the employer must agree to it.
4. Tax Consideration of Partial Retirement
The employer's top-up payment (i.e., the amount the employer pays in addition above half pay) of 20 percent or more of the employee's wages is granted free of tax and social security contributions. However, the increase is subject to the progression proviso. This means that although the top-up amount itself is not taxed, it is counted as income when determining the relevant tax rate. As a result, the employee in partial retirement must pay a slightly higher tax rate on half of the remaining remuneration, which is still subject to income tax as normal.
5. Severance pay in public service due to pension reduction
A distinction must be made when it comes to severance pay: If the start of the pension period is also shifted forward in the course of partial retirement, the old-age pension is reduced by 0.3 percentage points for each month by which the pension period is shifted forward. For employees covered by the collective agreement on part-time work for older employees (TV ATG) (public sector), § 5 Para. 7 TV ATG contains a severance payment provision for this pension reduction. For each reduction of 0.3 percent per month, a severance payment of five percent of the last monthly salary is due. However, this regulation only applies to existing partial retirement agreements. It is possible for a maximum reduction of five years (60 months) and therefore amounts to a maximum of three months' salary (5 percent times 60 months = 300 percent) for a pension reduction of then 18 percent (0.3 percent times 60 months).
Calculation example:
If the pension start date is shifted forward by 1 year (12 months) due to the use of partial retirement, the monthly pension is reduced by 12 x 0.3 percent = 3.6 percent. Assuming a pension of 2.400 Euro per month, this is an amount of 2.400 euros x 3.6 percent = 86, 40 euros. The pension is therefore reduced to 23134, 60 euros.
For this pension reduction a severance pay is due. Fraud the last month's pay 5.000 Euro (gross), the severance pay is 5.000 euros x 5 percent x 12 = 3.000 Euro. The settlement still has to be taxed.
6. Excursus: severance pay for employees close to retirement age in the event of imminent job cuts
"Retired" employees are often encouraged to take partial retirement in anticipation of a required reduction in force. Sometimes older workers are offered voluntary termination of their contract in exchange for severance pay. Or a dismissal for operational reasons will be pronounced right away. We have described the prerequisite for severance pay in the event of termination for operational reasons in our related article.
In the case of severance payments due to mass redundancies according to a social plan, the amount of the severance payment (resp. of the relevant severance provision) sometimes differentiates based on whether the affected employee is a "near-retired" employee who will retire in a few years. Often, the social plan contains a standard severance payment provision, in which the amount of the severance payment is calculated according to the length of service (and, of course, according to the remuneration received). This actually often results in very high settlements.
For employees "close to retirement", on the other hand, a calculation formula is sometimes used according to which only the (few) years of service still outstanding are to be decisive for the calculation of the severance payment rather than the past years of service. Only the losses of the pension resulting from the dismissal are then taken as decisive for the calculation. The resulting settlement amount is regularly much lower than if it were calculated on the basis of years of service with the company.
Before the Federal Labor Court (BAG), a 62-year-old man filed a lawsuit against a regulation that granted employees over the age of 58 a significantly lower severance payment than their younger colleagues. The 62-year-old had received a severance payment of 5.000 Euro received. On the other hand, if he had been covered by the "normal" severance payment scheme (based on length of service), he would have received over 230.Get 000 Euro. However, the BAG ruled that such a provision does not constitute impermissible age discrimination and is legal (Urt. v. 26.03.2013 – Az. 1 AZR 813/11).
In this context, it remains doubtful whether such a severance payment provision is also lawful if the classification as a "near-pensionable" employee is due to an early start of pension (due to the use of partial retirement). The lower court of the BAG had still denied this and awarded the 62-year-old a compensation of almost 40.000 euros was awarded (LAG Dusseldorf v. 16.09.2011 – Az. 6 Sa 613/11).
7. Conclusion and practical advice
Partial retirement is a tempting prospect to retire earlier without accepting (major) financial losses. However, if a dismissal or. a termination agreement with the offer of severance pay is in the offing, careful consideration must be given to which regulatory model represents the most favorable solution overall. Do not forget: Despite tax benefits (quintuple rule), the severance pay is taxed, d.h. a high severance payment also entails a corresponding "hefty" taxation.
When looking for the most favorable solution, all affected factors (working hours per day, early retirement, remuneration until retirement, expected income pension as well as any severance pay including taxation) must be kept in mind – preferably by an experienced attorney for labor law.