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Impact Investing

IPE special report May 2018

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Backdating bill for German public sector

Germany’s public sector pension schemes could be faced with a huge bill – in excess of DM1bn (e500m) – following a judgement by the European Court of Justice (ECJ) that they are liable to backdate pension payments to part-time workers.
The court ruling on the retrospective application of equality rules in the cases of Schroeder v Deutsche Bundespost Telekom, Vick and Conze v Deutsche Telekom and Deutsche Post v Sievers and Schrange, declares that German companies cannot override national trust factors in favour of 1990’s Barber ruling.
Barber requires that no arrears have to be paid before May 1990 in equality cases. However, the ECJ ruling declares: “The time limitation of the possibility to invoke the direct effect of article 119, resulting from the Defrenne ruling of April 8, 1976, does not block national dispositions promoting the principle of equality. As a result, in cases such as principal litigation, all part time workers have the right to be affiliated retrospectively to a professional retirement scheme.”
Theodor Cisch, head of the Cologne legal office of consultant William M Mercer, says an employee working part-time for 40 years in a public sector company will now be eligible for backdated payments for the whole period.
“There have been calculations I have heard for Deutsche Telekom, Yellow Post and the Postbank, showing that they will have to finance an amount of DM1bn. This is just for three companies, so you can imagine what it will cost for the whole public sector. It will be an enormous amount.”
He explains that while the German private sector implemented equal treatment quite early for pensions, in the public sector it was brought in much later. “German public sector companies tried to claim exemptions in the German courts, which pointed to the equal treatment principal of the German constitution of 1949.
“They then went to the ECJ to get exemption for the period before the Barber ruling. The court says this is possible, but not in cases where national ‘trust’ principles indicate that membership of a pension scheme would not be covered by the Barber case.”
The ECJ ruling had also been expected to clarify the position of part-time workers seeking backdated pension rights to 1976 on a Europe-wide basis. However, the application of the ruling is restricted to German national law.
Any conclusion on the issue of pension backdating is now expected to rely on a ruling in the Preston case – challenging the UK’s two-year limit on pensions backdating and the requirement that claims are brought during employment. No hearing date has been set for this.

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