The idea that employment automatically ends upon reaching retirement age persists. But what is the legal reality? When can an employment relationship actually end, and what applies to continued employment beyond retirement age? This article clarifies common misconceptions and explains the most important legal principles.
No automatic termination upon retirement
Contrary to widespread belief, an employment relationship does not automatically end when an employee reaches the standard retirement age or starts receiving an old-age or disability pension. The employment relationship generally continues regardless of pension payments, unless otherwise specified in the employment contract.
The only exception is if a so-called pension limitation has been agreed in the employment contract. This may stipulate that the employment relationship ends as soon as the employee reaches the standard retirement age or receives a full, permanent disability pension.
Termination or termination agreement required
If there is no pension limitation, employers or employees must take action if they wish to terminate the employment relationship upon retirement. In these cases , termination or a termination agreement is required. As with any termination, employers must observe the social security requirements, especially if the Termination Protection Act applies.
Receiving a pension alone is not a valid reason for termination. It is illegal to justify termination on the grounds that an employee is already financially secure due to their pension.
Special features of continuing to employ pensioners
If the employment relationship continues beyond retirement, the previous working conditions continue to apply in principle. However, there are some special features of social security law that must be observed:
- Continued payment of remuneration in the event of illness: The six-week continued payment of remuneration in the event of illness also applies to pensioners. However, from the seventh week onwards, the entitlement to sick pay ceases if a full pension is received.
- Income supplement limit: The income supplement limit has been abolished for several years. This means that pensioners can earn additional income without their pension being reduced.
- Right to choose pension insurance: Pensioners can choose whether they want to continue paying contributions to pension insurance. These increase their pension entitlements but reduce their net earnings. Alternatively, the employee's contribution can be waived.
- Unemployment insurance: There is no right to choose here. Only the employer's contribution is deducted.
Continuing to work despite a fixed-term pension
Even if a fixed-term pension is provided for in the employment contract, the employment relationship can be extended by mutual agreement. There are two options:
- Continuing to work beyond retirement age without contractual adjustment – the employment contract continues indefinitely. However, this carries the risk that the employer can only terminate the contract by giving notice or by means of a termination agreement.
- Postponement of the retirement age – the employment relationship ends as planned upon reaching retirement age, but is extended by agreement. This extension is legally permissible and can be repeated as often as desired.
Conclusion
An employment relationship does not automatically end when retirement begins. The end can only occur automatically if this is stipulated in the employment contract. Otherwise, termination or a termination agreement is necessary. Continuing to employ pensioners is legally possible and offers advantages for both sides, but it also requires an understanding of the special features of social security law.
Employers and employees should therefore clarify at an early stage what arrangements are to be made for the period around retirement, not least to ensure legal certainty.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.