24. Nov 16

BAG on interest on capital from occupational pension

If it has been agreed that capital from an occupational pension scheme can be paid out in several instalments, the employer can take its bearings from the interest rates of secure forms of investment.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: In principle, contributions to an occupational pension scheme are considered to be voluntary payments by the employer. Notwithstanding this, employment law also provides that these kinds of benefits can be guaranteed contractually or by way of works agreements.

Nevertheless, legal disputes concerning company pension schemes sometimes arise between employers and employees. For instance, the Bundesarbeitsgericht (BAG), Germany’s Federal Labour Court, had to rule on the appropriate rate of return on pension capital in its judgment of August 30, 2016 (3 AZR 272/15).

In the instant case, the plaintiff was employed at a company operating in the metal and electrical industry. A works agreement on company pension schemes was in place aimed at building up the pension capital through deferred compensation. Additionally, disbursement guidelines had been agreed, according to which the pension capital could not be paid out in more than 12 annual instalments and the interest paid should be based on the market interest rate. While the plaintiff opted for this model when he went into retirement, he took issue with the rate of return on the capital.

The employer annually set the rate of interest at 0.87 per cent and in doing so took its bearings from the interest rate for so-called “Staatsnullkuponanleihen” (government zero-coupon bonds), a low yielding but also very safe form of investment. However, the plaintiff had envisaged a higher return and subsequently demanded an interest rate of 3.55 per cent p.a. on his pension capital.

The BAG refused to grant his claim, stating that if the agreement stipulated that the pension capital was to be disbursed in 12 yearly installments and yield interest at the normal market interest rate as set by the employer, it was not unfair for the employer in exercising reasonable discretion to orient itself based on a secure form of investment. The Court held that this is the case when taking one’s bearings from the return on Staatsnullkuponanleihen.

Lawyers who are versed in the field of employment law can advise on all legal issues pertaining to employment relationships, including any contractual arrangements between employer and employee.

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