German Court Settles Key Question on Employer Pension Top-Ups, but Broader Reform Stalls
17.06.2026 - 07:44:28 | boerse-global.de
Only one in four employees at Germany's smallest firms has a company pension, a statistic that underlines how uneven the occupational retirement system remains. While a new decision from the Federal Labor Court (Bundesarbeitsgericht, BAG) clears up a long?standing ambiguity about how employers must pay their mandatory top?up for direct insurance policies, the wider picture is one of stalled expansion and mounting frustration among businesses.
At the heart of the June 2025 ruling (3 AZR 158/24) is a straightforward principle: the employer satisfies its legal obligation the moment the money actually reaches the pension provider. No special agreement or additional declaration is required. The court also stressed that the subjective classification of the payment by the parties is irrelevant. It left unanswered, however, whether other benefits the employer provides could be counted against the top?up requirement.
The clarification comes as a fresh survey by the German Insurance Association (GDV) paints a sobering picture of the so?called betriebliche Altersversorgung (bAV). Although 68 percent of companies offer some form of company pension, growth has stalled. Only 52 percent of all employees subject to social insurance contributions currently have a bAV.
What is holding firms back? The GDV poll points to three main barriers:
- High administrative burden (39 percent)
- Legal uncertainty (38 percent)
- Complex regulations (36 percent)
Fully 42 percent of respondents rated the liability risk as high, while 59 percent demanded stronger tax incentives. Jörg Asmussen, the GDV’s managing director, warned that a possible mandatory introduction of company pensions would risk overburdening employers.
The courts have been tightening requirements in other areas too. A 2021 BAG ruling established that part?time periods may be counted only proportionally when calculating retirement benefits, and that capping maximum amounts is permissible. Any attempt to replace an existing pension scheme during a business transfer must pass a three?step scrutiny test. Collective bargaining agreements can justify downgrades, but works council agreements alone cannot. Even waiving the right to object after a business transfer must be explicit and unambiguous – a mere acknowledgment is insufficient.
Tax treatment adds another layer of complexity. In 2021 the Federal Fiscal Court (Bundesfinanzhof) held that the so?five?year?average rule (Fünftelregelung) can apply to lump?sum payouts from a direct pension promise in cases of disability, provided the one?off payment covers a long?accumulated entitlement and there is no free choice of capital.
Insolvency protection is handled by the Pensions?Sicherungs?Verein (PSV), which covers ongoing pensions and vested rights. Companies with many retired employees should coordinate payment channels with the PSV well in advance; since 2023 the reporting process has been digital.
Several reform ideas are now on the table to make the bAV more attractive, especially for small firms and low earners. Zurich Insurance Group and the German Institute for Retirement Provision are calling for auto?enrolment systems, better portability, and simpler administration. On the political front, plans to tie the bAV more closely to the statutory pension scheme are gaining traction. The Left Party has proposed that additional contributions to the state pension fund count as company pension – provided the employer also chips in. The goal is to improve coverage for workers in micro?enterprises, where currently only one in four has any supplementary retirement provision.
