The Second Occupational Pension Strengthening Act – new opportunities for companies

New opportunities with regard to social partner models

A key hurdle to the spread of occupational pension schemes in Germany is the understandable concern of many employers about liability arising from pension commitments once they have been made, beyond the contributions paid in.

The option of granting a so-called pure defined contribution scheme via the social partner model, which was first created in 2018 with the first Occupational Pension Strengthening Act (BRSG), has the potential to alleviate these concerns for companies.

In a social partner model, the employer is only obliged to pay the agreed contributions to the pension provider. There is no liability for future pension benefits – not even on a subsidiary basis ("pay and forget"). This form of pure defined contribution, known internationally as "defined contribution" (DC), was previously reserved exclusively for employers bound by collective agreements.

Approval of the social partners

Pure defined contribution schemes are now considered an efficient means of strengthening occupational pension provision. However, the extent to which they will actually be implemented in practice in the future continues to depend largely on the willingness of the social partners to open up their collective agreements to employers who are not bound by collective agreements.

This is because both scenarios require the consent of the social partners (trade unions and employers' associations).

There is the option of requiring the subsequent employer to contribute appropriately to the costs incurred in connection with the implementation and management of a social partner model.

Further innovations:

Opt-out models

In future, opting-out models will also be possible without a collective agreement by means of a works or service agreement – provided that the employer is not bound by a collective agreement and there are no customary collective bargaining regulations in the industry. To this end, the employer's contribution to deferred compensation must be increased from 15% to 20%.

Recipients of partial pensions

It is planned that company pensions can also be taken early if employees receive a partial pension from the German Pension Insurance Fund – previously, this was only possible if they received a full pension.

Relief for small pension entitlements

The new law is intended to facilitate the settlement of small pension entitlements by allowing employers, with the consent of their employees, to pay the amounts directly into the statutory pension insurance scheme. This reduces the administrative burden and relieves the employer in the case of short-term employment relationships.

A social partner model can still only be established on the basis of a collective agreement. However, it is positive to note that the government draft aims to improve the framework conditions for employers who are not bound by collective agreements.

In future, these employers in particular will have the opportunity to join a social partner model governed by a collective agreement and thus gain access to pure defined contribution schemes (known as "docking").

"Docking" without union membership

On the one hand, employers should be given the opportunity to use the social partner model of an association collective agreement without being a member of the relevant employers' association or concluding their own in-house collective agreement. Reference to the social partner model can be made through an individual agreement, a general commitment or a works agreement.

This is subject to the collective agreement (assuming association membership) being relevant to the employer's business.

"Docking" with the union's statutory competence

In addition, companies can even join a social partner model outside their own industry. To do so, the relevant collective agreement must contain an opening clause or the trade union covered by the collective agreement must also be responsible for the employer's business in accordance with its statutes.

Recommendations for practice

The legislative process for the BRSG II should be followed closely. It is quite conceivable that it will be passed before the end of this year.

Companies should definitely consider the possibility of introducing a social partner model, especially if they:

• have not yet offered any or only minimal occupational pension schemes,
• re reviewing existing pension schemes and their risks (e.g. pension provisions),
• are planning a new pension scheme.

The introduction of or switch to pure defined contribution schemes requires careful planning – especially in the case of existing commitments.