Germany’s Federal Labour Court has given protection to employers on 'deferred compensation' pension claims while strengthening the value of collective agreements.

As reported in Handelsblatt, the decision in Erfurt means that employers no longer have to make a contribution to a company pension scheme in the case of ‘deferred compensation’ if the collective agreement contains a different provision.

The method of ‘deferred compensation’ has allowed employees to use part of their salary for the company pension scheme, allowing them to save on social security contributions.

However, the situation since the beginning of 2019 has meant that those employees have been obliged to pay a 15 per cent subsidy if they save on social security contributions — a regulation brought in by the new government.

However, collective agreements between employers and unions can deviate from this.

Under this system, employees can have a proportion of their wages channelled into an insurance policy or a pension fund, an arrangement that has beneficial tax implications for both employer and employed.

This week, that decision has been affirmed by the Federal Labour Court, reflecting an earlier judgement from the lower courts.

The case heard this week in Erfurt was from a carpenter seeking the subsidy. The relevant pension planning collective agreement hails from 2008 and already includes the option for wage conversion.

Employees opting for this also acquire an additional pension planning basic amount that is fully covered by the employer.

The court ruled that older agreements can manage this situation and said that there should be no additional 15 per cent claim in this case.

However, whether this applies to older agreements without the participation of employers is still yet to decided at the court level.

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