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The favourable treatment of insured persons with 45 obligatory contribution years and reductions in old-age pensions drawn early are constitutional

Press Release No. 102/2008 of 04 December 2008

Order of 11 November 2008
1 BvL 3/05

On 11 November 2008, the First Senate of the Federal Constitutional Court ruled on five submissions by the Federal Social Court (Bundessozialgericht) which related to the early drawing of old-age pensions. The Senate regarded it as compatible with the general principle of equality that insured persons born before 1 January 1942 who have paid obligatory contributions to the pensions system for 45 years are favoured by the law when they draw old-age pensions. At the same time, the judges established that reductions in old-age pensions which are drawn early do not violate the guarantee of property or the general principle of equality.

The plaintiffs of the five original proceedings applied for the early payment of old-age pensions from reaching the age of 60 pursuant to § 237 of the Sixth Book of the Code of Social Law (Sozialgesetzbuch VI - SGB VI) on account of unemployment or part-time work leading into retirement. Due to the reduced age factor, they only received reduced pensions. Four of the plaintiffs were born before 1 January 1942; they did, however, not meet the precondition of 45 obligatory contribution years to qualify for a more favourable pension payment. The Federal Social Court suspended all proceedings pursuant to Article 100.1 of the Basic Law (Grundgesetz - GG) and submitted to the Federal Constitutional Court the question whether the above provisions are compatible with the Basic Law.

The decision is essentially based on the following considerations:

§ 237.4 sentence 1 no. 3 SGB VI does not violate Article 3.1 GG. Persons insured under the statutory pension insurance can continue to claim the favourable lower age limits set out in the Pensions Reform Act 1992 if they were born before 1 January 1942 and have made obligatory contributions to the statutory pension insurance for 45 years. In relation to a specific age, this reduces the number of months in which a pension is drawn early, which leads to a lower reduction of the age factor pursuant to § 77.2 sentence 1 no. 2 letter a SGB VI than is the case for other insured persons of the same age; this has the consequence that more personal remuneration points are entered into their pension formula than for the other insured persons. Differentiating according to whether an insured person has accumulated 45 obligatory contribution years thus leads to the unequal treatment of two groups of insured persons. The unequal treatment is, however, justified for factual reasons because with the requirement of 45 obligatory contribution years, the legislature has created a time-based qualifying condition, which is not alien to the statutory pension insurance system. In the statutory pension insurance, the duration of insurance periods has always been a determining factor for the accrual and the calculation of pensions. Moreover, an insured period of 45 years is not an unusual calculation factor in the statutory pension insurance. In this context, what is known as the "reference pensioner" (Eckrentner), i.e. an insured person who for 45 years makes contributions to the statutory pension insurance whose amount results from the annual average income of all insured persons, which changes every year, serves as a basis for comparison which allows to follow the development of the pension amounts in the statutory pension insurance over the years. The privileged treatment of insured persons with 45 obligatory contribution years is justified by their long-term and calculable contributions to the financing of the statutory pensions insurance. Judging by the length, continuity and amount of their contributions, persons who are obligatorily insured in the statutory pension insurance have, as a general rule, contributed to the community of insured persons to a higher degree than voluntarily insured persons, without having the possibility of avoiding such obligation that voluntarily insured persons have. This makes the obligatorily insured persons, with whose contributions the statutory pension insurance system can reckon in a continuous and calculable manner, the mainstay of the statutory pensions insurance's financing.

Also § 237.3 in conjunction with § 77.2 sentence 1 no. 2 letter a SGB VI does not infringe constitutional law. The provisions on the determination of reductions in the case of old-age pensions which are drawn early due to unemployment or after part-time work leading into retirement constitute an admissible determination of content and limits pursuant to Article 14.1 GG. The restriction of the pension entitlement which results from the provisions on reduction is justified by reasons of the common good and complies with the requirements of the principle of proportionality. On the one hand, pension entitlements are reduced; on the other hand, the early drawing of a pension is cost-neutral for the community of insured persons and thereby secures the statutory pension insurance's basis of financing. By introducing an age factor which reduces an old-age pension that is drawn early the legislature has chosen a means which imposes the costs of an early drawing of old-age pensions, which before the Pension Reform Act 1992 burdened all insured persons, solely to such insured persons who actually draw an old-age pension early. It was also within the legislature's freedom of drafting to determine the age factor pursuant to § 77.2 sentence 1 no.2 letter a SGB VI according to the actuarial calculation methods which it had chosen.. Measured against its own concept, the legislature did not disregard reality or determine the figures arbitrarily when fixing the calculation quantities. Apart from this, drawing a pension early is connected with the advantages of early retirement. In all five original proceedings, insured persons, when deciding whether to accept a start of the pension payment which would result in reductions, could determine the point in time of their pension application without any restrictions and thus themselves influence the amount of the reductions. A lasting pension reduction if a pension is drawn early is appropriate when weighed against this increase of individual freedom in old age.

The introduction of an age factor that results in lasting reductions of an old-age pension if it is drawn early also complies with the principle of the protection of public confidence under the rule of law. The plaintiffs of the original proceedings, who were born in the years 1941 and 1942, had to expect that in view of the financial stringency of the statutory pension insurance in the 1990s, the legislature could be required to make even further-reaching amendments to the transitional concept of the Pensions Reform Act 1992, which had been planned with a long-term view, to secure the basis of financing of the statutory pension insurance. Under these circumstances, a confidence worthy of protection in the continued existence of the terms of the transitory arrangement could not arise in this context.

To the extent that Article 3.1 GG was the subject of the questionsubmitted and to the extent that the Federal Social Court put forward the argument that a pension reduction takes place even if the individual advantage of a pension drawn early will be offset, in terms of figures, at an age of 87 years and 10 months, this argument already runs counter to the basic principles of the statutory pension insurance as a mutually supportive community. Risk sharing takes place within the community of insured persons as is the case with every insurance. Apart from this, it must be taken into account that according to the mortality table 2005/2007, the average live expectancy in Germany has increased, but that according to the relevant statistics, the average total lifespan of 60-year-old insured persons is still considerably below the limit of 87 years and 10 months which has been calculated by the Federal Social Court.