The New 'Aktivrente': Working in Retirement – What German Employers Must Observe

The Federal Cabinet today passed the draft of the Law for the Tax Promotion of Employees in Retirement (Aktivrentengesetz). The 'Aktivrente' is intended to come into force as early as January 1, 2026. The Bundestag and the Bundesrat must still give their approval.

With tax incentives, the government wants to make working after reaching the standard retirement age for receiving an old-age pension more attractive. By working beyond the standard retirement age, the shortage of skilled workers is on the one hand to be cushioned and, on the other hand, the statutory pension system is to be relieved.

In summary, the 'Aktivrente' provides that people who continue to work even after reaching the statutory standard retirement age can earn up to 2,000 euros monthly tax-free. The up to 2,000 euros are not subject to the progression proviso (Progressionsvorbehalt), so they do not increase the tax rate for the remaining taxable income.

However, employees and employers must also pay contributions to health and nursing care insurance for the 'Aktivrente', and the employer must also pay into pension and unemployment insurance.

Beneficiaries are employees subject to social security contributions (not self-employed persons and civil servants) from the point of exceeding the statutory retirement age and after completion of the 67th year of life. The benefit applies regardless of whether the taxpayer receives a pension or possibly postpones the receipt of the pension.

Opportunities for Employers and Employees

The employment of older employees even after retirement offers employers and employees the chance to continue to benefit from each other in the long term. A prerequisite for employers is mandatory forward-looking planning and the legally secure design of contractual relationships. Then the 'Aktivrente' can contribute to fully exploiting the potential of older employees.

In the following, we show which labor law pitfalls employers must consider when working in retirement according to current law.

Impact of the Standard Retirement Age on the Employment Relationship

First, employers must check what effects reaching the retirement age has on the employment relationship. This depends on whether the employment relationship is age-limited or not.

Employment Relationship Without Age Limitation

An employment relationship does not end automatically upon reaching retirement age if it is not limited to reaching the standard retirement age. Without an age limitation, the employment relationship must be terminated either by a termination agreement or a dismissal – although a dismissal must not take place because of age. Until then, the unlimited employment relationship continues unchanged even beyond reaching retirement age. The contracting parties do not have to become active in such cases to extend the employment relationship to the 'Aktivrente'.

Employment Relationship With Age Limitation

Usually, however, German employment contracts, works agreements, or collective bargaining agreements provide for so-called age limitations. With these clauses, the employment relationship is limited so that it ends automatically upon reaching the standard retirement age. If the employment relationship is to be continued beyond this age limitation, the parties to the employment contract must become active in good time.

(While limitations of employment contracts generally require written form for their effectiveness under Section 14 para. 4 of the German TzBfG, a limitation to reaching the standard retirement age under Section 41 para. 2 SGB VI only requires text form since the fourth Bureaucracy Relief Act came into force.)

Continued Employment with Age Limitation and After Retirement Age

In such cases, both employers and employees regularly want to agree on active work in retirement only for a limited transitional period. Employers in particular have an interest in the workstation being filled until a predictable, fixed point in time; but becoming free thereafter for a generational change.

The current legal situation, especially the German Part-Time and Fixed-Term Employment Act (TzBfG), complicates such further limitations beyond the retirement age. Whether the legislator will reduce these hurdles with the change in the law for the 'Aktivrente' remains to be seen. As of today, the following general limitation regulations are to be observed:

The limitation of an employment contract is permissible if one of the objective reasons mentioned in Section 14 para. 1 TzBfG exists. The permissible objective reasons that allow a limitation are strictly interpreted by the courts.

Although it is legally regulated in Section 23 TzBfG in conjunction with Section 41 para. 2 SGB VI and Section 10 no. 5 AGG and recognized both by the European Court of Justice and the German Federal Labor Court that a limitation to reaching the standard retirement age is permissible because the employee is secured by their pension.

However, this objective limitation reason is "used up" upon reaching the standard retirement age. It can no longer be used for a new limitation agreement for a continued employment relationship that is continued beyond this point in time.

And because of age in general or the receipt of an old-age pension, the continuing employment relationship cannot be limited either. Such a limitation would be invalid under Section 7 para. 2 of the German General Act on Equal Treatment (AGG) because it represents inadmissible age discrimination.

A limitation without an objective reason under Section 14 para. 2 TzBfG is generally also not permissible because a limited or unlimited employment relationship has already existed with the same employer previously.

If the employee is to continue working for the previous employer in retirement, it must be ensured that no unlimited employment relationship arises. There is a high legal risk that a new limitation agreement is invalid.

Postponement Agreement as a Solution

However, the legislator offers a solution with the special norm of Section 41 sentence 3 SGB VI: the limited continuation of the age-limited employment relationship after reaching retirement age can take place with the current employer on the basis of a so-called postponement agreement (Hinausschiebensvereinbarung):

"If an agreement provides for the termination of the employment relationship with reaching the standard retirement age, the parties to the employment contract can postpone the termination date, if necessary also multiple times, by agreement during the employment relationship."

Both the European Court of Justice and the German Federal Labor Court have clarified that no objective reason within the meaning of Section 14 para. 1 TzBfG is required for the postponement alone and that it is compatible with both Union law and national law (BAG, Judgment of Dec 19, 2018, Ref.: 7 AZR 70/17; ECJ Judgment of Feb 28, 2018, C-46/17 - John). The postponement agreement enables continued employment limited without an objective reason beyond retirement age despite a previously existing employment relationship.

Observe Requirements of the Postponement Agreement Strictly

As an exceptional circumstance, the postponement agreement is subject to strict requirements that must be implemented precisely:

Age Limitation

The postponement agreement assumes that the employment relationship is limited to reaching the standard retirement age.

Time of the Postponement Agreement

It must be agreed during the employment relationship, i.e., before reaching the standard retirement age. Once the standard retirement age has been reached, the employment relationship is already ended by the age limitation. If the employee is to be brought back into the operation thereafter, this constitutes a new recruitment in labor law terms, for which the general limitation rules mentioned above apply.

No Change to Other Contractual Conditions

To be on the safe side, only the termination date should be postponed in the postponement agreement. Other contractual conditions should not be changed.

In case law and literature, it is disputed whether the factual feature of postponing the termination date within the meaning of Section 41 sentence 3 SGB VI assumes that only the contract term is extended and the contract content otherwise remains unchanged. This is particularly relevant if employees want to reduce their working hours in old age, for example. The risk here is always that if the requirements are violated, the postponed limitation cannot be based on Section 41 sentence 3 SGB VI and an unlimited employment relationship arises again.

Agree on Other Changes Separately if Necessary

The assumption of a postponement agreement within the meaning of Section 41 sentence 3 SGB VI is not opposed by a change in the other contractual conditions according to previous law and case law of the German BAG, at least if this is agreed neither simultaneously nor in a temporal connection with the change in the contract term. The decisive factor is whether the change in the other working conditions is agreed simultaneously or in a temporal connection with the change in the contract term. When these requirements are met is a question of the individual case.

The BAG confirmed so far that a change in the working conditions six weeks after conclusion of the postponement agreement is harmless in a case where the working conditions were changed by mutual agreement after conclusion of the postponement agreement and after reaching the standard retirement age (BAG, Judgment of Dec 19, 2018 – 7 AZR 70/17).

Period and Multiple Postponements

The law does not provide for a specific minimum or maximum requirement for postponing the termination date of the employment relationship. Multiple extensions of the termination of such an employment relationship are also permissible according to the wording of the law. Multiple postponements must also be agreed during the (postponed) employment relationship. However, the ECJ requires that there is no abuse of rights. When the boundary to abuse of rights is crossed is judged according to the individual case. Sensitivity is required here.

Written Form

For reasons of proof alone, the postponement agreement should be agreed in writing and a copy handed over to each party.

Observe Further Labor and Social Security Law Aspects

When continuing employment beyond the collective bargaining age limit, the Works Council must be involved in businesses with a Works Council. From the point of view of the BAG, this also constitutes a recruitment subject to co-determination under Section 99 para. 1 sentence 1 BetrVG.

Continued employment also has consequences for social security law. Employers must regularly continue to pay employer contributions; employees continue to pay health and nursing care insurance contributions.

If employees want to remain available to the company as self-employed consultants when retirement starts, a false self-employment (Scheinselbstständigkeit) must be carefully checked and avoided by appropriate designs.

Legal Tips:

Employers should plan the 'Aktivrente' of interested employees early and obtain advice from a specialist lawyer for labor law in individual cases.

Continued employment for a limited period in retirement can be implemented in a legally secure manner through an effective postponement agreement. This must be made in good time and in compliance with the legal requirements.

Whether the legislator will regulate further simplifications for the postponement agreement with or in connection with the law for introducing the 'Aktivrente' remains to be seen. We are happy to advise you.