Bundesverfassungsgericht

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Provisions governing the mandatory farm transfer as an eligibility requirement for pension benefits are unconstitutional

Press Release No. 68/2018 of 09 August 2018

Order of 23 May 2018
1 BvR 97/14, 1 BvR 97/14, 1 BvR 2392/14

Making pension benefits contingent upon the transfer of an agricultural holding constitutes a factual interference with the freedom of property under Art. 14 of the Basic Law (Grundgesetz – GG). Such a farm transfer requirement (Hofabgabe) becomes unconstitutional where it deprives the persons concerned of income that is necessary to supplement a pension scheme designed as partial old-age insurance. Moreover, for married farmers the pension entitlement of one spouse must not be dependent on the other spouse’s decision whether to transfer the farm. For these reasons, the First Senate of the Federal Constitutional Court declared the relevant legal provisions unconstitutional in an order published today; it granted the relief sought in constitutional complaint proceedings brought by a farmer and by the wife of another farmer, reversed the challenged court decisions and remanded the matter for a new decision to the Higher Social Court (Landessozialgericht) of North Rhine Westphalia.

Facts of the case:

The Old-Age Insurance Scheme for Farmers (Alterssicherung der Landwirte) is the occupational pension scheme for members of the agricultural profession in Germany. It is part of the statutory pension scheme. The applicable legal framework is set out in the Old-Age Insurance Scheme for Farmers Act (Gesetz über die Alterssicherung der Landwirte – ALG). The Act provides that the transfer of one’s farm is required to be eligible for the pension.

I. The complainant in proceedings 1 BvR 97/14 was born in 1944; her husband is a farmer and forester born in 1940. As the spouse of an agricultural business owner, the complainant is legally deemed a farmer herself, pursuant to § 1(3) first sentence ALG. 

The competent farmers’ insurance scheme provider rejected the complainant’s pension claim submitted in 2011 on the grounds that her husband had reached the statutory retirement age (Regelaltersgrenze) but had not yet transferred his agricultural holding.

The subsequent legal action brought by the complainant before the social courts was unsuccessful, including on appeal on points of fact and law. The Federal Social Court (Bundessozialgericht) did not grant leave for appeal on points of law, and rejected her subsequent complaint seeking remedy for a violation of the right to be heard (Anhörungsrüge).

II. The complainant in proceedings 1 BvR 2392/14 was born in 1938 and owns an agricultural holding. The Agricultural Pension Fund (Landwirtschaftliche Alterskasse) rejected his pension claim submitted in 2010 on the grounds that the complainant had retained agricultural farmland that by far exceeded the permissible area of 6 hectares, and had thus failed to transfer his agricultural holding. The legal action challenging this decision was rejected by the Social Court (Sozialgericht). The complainant’s appeal on points of fact and law to the Higher Social Court, and the following complaint against the denial of leave to appeal on points of law as well as the complaint seeking remedy for a violation of the right to be heard were unsuccessful.

Key considerations of the Senate:

I. The mandatory farm transfer as an eligibility requirement for pension benefits pursuant to the Old-Age Insurance Scheme for Farmers Act constitutes an interference with the freedom of property protected under the fundamental rights (Art. 14(1) GG).

1. Nonetheless, there is no interference with the complainants’ pension expectancies or entitlements that fall within the scope of protection of Art. 14(1) GG. This is due to the fact that according to the Old-Age Insurance Scheme for Farmers Act, such pension expectancies and entitlements under the farmers’ pension scheme can only arise once the agricultural holding has been transferred; in consequence, the transfer requirement does not violate Art. 14(1) first sentence GG in relation to these legal positions.

2. There is, however, an interference with the ownership of the complainant in proceedings 1 BvR 2392/14 regarding his agricultural holding. This follows from the consideration that interferences with fundamental rights are not limited to formal legal measures in terms of orders or prohibitions (i.e. imperative measures) that are directly and deliberately imposed by the state and, if necessary, enforced by state authorities, resulting in a curtailing of fundamental freedoms. Rather, state measures can also be qualified as impairing fundamental rights if their indirect and factual effects are equivalent to an interference (eingriffsgleiche Wirkung). This is the case for the farm transfer requirement. Farmers are only eligible for a pension if they transfer their agricultural holding in accordance with one of the options listed in § 21 ALG. Thus, farmers face an indirect and factual pressure to transfer their agricultural holding. While farmers can still decide freely whether to transfer or to continue their business, they are only eligible under the pension scheme if they choose to transfer their holding. Ultimately, the payment of contributions to the farmers’ old-age insurance scheme, over a period of several decades, is only viable from an economic perspective if the farmer actually receives a pension. In case the agricultural holding is not transferred, the farmer receives nothing in return for paying these contributions. The contributions paid are completely lost to him or her. The impact of this loss is further aggravated by the fact that farmers are not free to decide whether to contribute to the farmers’ old-age insurance scheme, as the insurance scheme and contributions are compulsory.

II. The interference constitutes a determination of the content and limits of property (Inhalts- und Schrankenbestimmung) within the meaning of Art. 14(1) second sentence GG, rather than an expropriation of property, given that it does not serve the acquisition of assets by the state or a third party in the interest of the common good. It can only be justified if the following standards are met.

1. According to Art. 14(1) second sentence GG, the content and limits of property shall be defined by law. Such a legal basis is provided in § 11(1) no. 3 ALG, which provides that an entitlement to standard pension benefits pursuant to the Old-Age Insurance Scheme for Farmers Act arises only if the agricultural holding is transferred. The interference with the rights protected under Art. 14(1) first sentence GG that results from the determination of the content and limits of property can only be justified by public interests, subject to the principle of proportionality.

2. The farm transfer as an eligibility requirement for pension benefits pursuant to the Old-Age Insurance Scheme for Farmers Act satisfies the principle of proportionality only if the following standards are met.

a) With the farm transfer requirement, the legislature pursues several legitimate objectives relating to the structure of the agricultural sector. One objective is to promote the timely transfer of farms to the younger generation so as to achieve a reduction in the average age of farm owners. The farm transfer requirement seeks to encourage farmers to transfer their agricultural holdings to younger persons at an economically viable time. Moreover, the legislature pursues objectives related to the agricultural land market with the farm transfer requirement, in view of the fact that demand for agricultural land far exceeds supply and that there has been a steep increase in leasing prices. In addition, the farm transfer requirement seeks to improve business structures by way of expanding development opportunities for growing businesses. The release of agricultural farmland allows these businesses to satisfy their expansion needs sooner than would be the case in the absence of a farm transfer requirement.

b) The farm transfer requirement is not, from the outset, unsuitable for achieving these objectives. For the challenged provisions to be considered suitable, it is sufficient under constitutional law that it is possible that they further the objective pursued, i.e. that it is possible that the intended aim will be achieved. It is true that there is no obligation to transfer one’s farm; however, in the event that the farm is not transferred, the farmer loses the pension benefits accrued in return for contributions paid over a long period of time. In consequence, farmers are factually forced to transfer their farms. Under constitutional law, it suffices that the farm transfer requirement contributes, in connection with other factors, to the structural transformation of the agricultural sector. The conclusions drawn from a sample study of farm transfers by persons entering retirement under the old-age insurance scheme for farmers in 2011 has confirmed the positive structural impact of the farm transfer requirement on the agricultural sector.

c) The legislature could reasonably assume that the farm transfer requirement was necessary, as less restrictive means were not available. The Federal Constitutional Court is not called upon to review whether the legislature has found the best possible solution for the underlying problems that the relevant law seeks to address; in this regard, the legislature is afforded a margin of appreciation and prognosis.

d) The farm transfer requirement is, however, not reasonable (zumutbar) in each and every case. It is imperative that the limit of reasonableness be observed in the overall balancing of the weight of the interference on the one hand, and the importance and urgency of the reasons invoked by way of justification on the other. The persons concerned must not be subjected to an excessive burden.

aa) The mandatory farm transfer as an eligibility requirement for pension benefits does not observe the limit of reasonableness insofar as it fails to provide for an exception in cases of extreme hardship (Härtefallregelung). Extreme hardships arise, most notably, in the event that a farmer willing to undertake the transfer fails to find a successor willing to take over the farm. In this case, the agricultural business owner is left only with the option to comply with the transfer requirement in a manner that does not generate any income: by rendering the farm unsuitable for agricultural use; by shutting down all operations; by forfeiting fishing rights; by abandoning the business of beekeeping, migratory sheep farming or afforestation. As a consequence, the person concerned does not receive a purchase price or lease payments as a form of retirement income; this renders the farm transfer requirement unreasonable. Besides, extreme hardships may also arise in the event that the transfer of the agricultural holding was possible yet would not generate the funds needed by the farmer, on top of the pension, in order to ensure that the cost of living during retirement is covered. In these cases, the requirement to transfer the farm becomes unreasonable given that in order to receive a pension, the farmer is forced to relinquish or reduce another source of retirement income, despite the fact that the relevant pension scheme is only designed as a partial old-age insurance and the transfer of the farm fails to generate adequate supplementary income.

bb) Overall, the amendment of § 21(9) ALG, effective 1 January 2013, by Art. 3 no. 3 lit. d of the Law Amending the Twelfth Book of the Code of Social Law and Other Provisions of 21 December 2015 – this amendment was not challenged by the present constitutional complaints – has rendered the challenged provisions unreasonable given that in the present date it applies to only a small group of farmers, thus unduly burdening them in comparison to other farmers. In determining the content of owners’ powers and obligations under Art. 14(1) GG, the legislature must furthermore observe the principle of equality under Art. 3(1) GG. The amended law no longer satisfies this principle. The amendment has simplified farm transfers between spouses. Under the new law, the spouse that takes over the agricultural holding from the other spouse will still only receive a pension if he or she later transfers the farm. However, the decisive element of the reform is that as of 1 January 2016, failure to transfer the agricultural holding excludes only the spouse who had taken over the farm from receiving pension benefits; by contrast, the pension benefits of the spouse who was the original transferor remain unaffected. While legislative reform thereby rectified a disadvantaging of spouses, which was incompatible with Art. 6(1) in conjunction with Art. 3(2) GG, it also created a new constitutional problem. This follows from the fact that a transfer between spouses is beneficial, in particular in cases where the spouse taking over the farm is exempt from compulsory insurance under the Agricultural Pension Fund. In this case, the business activities of the agricultural holding can be continued without the sanctioning effects brought about by the farm transfer requirement. Following the legislative amendment, only 21% of farmers, namely unmarried farmers, are fully affected by the farm transfer requirement, and only 15% of farmers, namely spouses co-managing an agricultural holding resulting in liability under the compulsory insurance scheme for both, are partially affected. It is unreasonable that a minority of currently only 36% of farmers are subject to a weighty interference with the fundamental right to property, for the purposes of agricultural policies seeking to ensure a sustainable structure of the agricultural sector, even though the affected farmers do not, by any means, have a closer connection to these purposes than other farmers. This must be taken into account when the legislature enacts new provisions.

III. As the wife of a farmer, the complainant in proceedings 1 BvR 97/14 is legally deemed a farmer herself pursuant to § 1(3) first sentence ALG. Her own pension entitlement resulting therefrom is, pursuant to § 21(9) fourth sentence ALG, contingent upon whether her husband complies with the farm transfer requirement as soon as he himself becomes eligible for receiving a pension under the pension scheme. The fact that one spouse’s pension entitlement is dependent on whether the other spouse carries out the farm transfer violates Art. 6(1) in conjunction with Art. 3(2) GG. According to Art. 6(1) GG, marriage and the family enjoy the special protection of the state. In consequence, the legislature is barred from any disadvantaging that is tied to the existence of a marriage. Constitutional law protects, under Art. 6(1) in conjunction with Art. 3(2) GG, the notion of a marriage in which both spouses are equal partners and in which the spouses are jointly responsible for determining their personal and economic life. This rules out that one spouse is afforded a one-sided dominance in determining legal arrangements. The legislature may not confer such dominance by law. This applies, most notably, with regard to designing compulsory insurance schemes under which the co-insured spouse, who is later entitled to a pension, is directly liable to pay contributions. § 21(9) fourth sentence ALG disregards the notion that choices affecting their economic life be determined in joint responsibility by both spouses, as protected under Art. 6(1) GG, leaving this determination to the one-sided discretion of one spouse instead. A specific justification under constitutional law for creating such a dependency on the decision of the respective spouse regarding the transfer of the farm is not ascertainable.

IV. § 11(1) no. 3 ALG, as amended by Art. 17 no. 6 of the Law Adapting the Retirement Age and Amending the Statutory Pension Framework (RV-Altersgrenzenanpassungsgesetz) of 20 April 2007 is, to the extent set out in the reasons attached to the order, incompatible with Art. 14(1) GG and, read together with § 21(9) fourth sentence ALG, as amended by Art. 7 no. 1a of the Law Revising the Framework on Agricultural Social Insurance (LSV-Neuordnungsgesetz) of 12 April 2012, incompatible with Art. 6(1) in conjunction with Art. 3(2) GG, and thus inapplicable. § 11(1) no. 3 ALG is declared inapplicable in its entirety given that it is incumbent upon the legislature to specify the cases in which a farm transfer requirement would be unreasonable. Conversely, § 11(1) nos. 1 and 2 ALG continues to be applicable. The Court decided not to declare the challenged provisions void on the grounds that the legislature has several possibilities of rectifying the constitutional deficits.