No automatic adjustment of occupational pensions to loss of purchasing power – clarification by the Federal Labor Court (BAG)
The Federal Labor Court (BAG) clarified central questions regarding the obligation to adjust occupational pensions in light of inflation development in its ruling of October 29, 2025 (Case No.: 3 AZR 242/5). Specifically, the court states that employers are generally not obligated to adjust company pensions automatically in the same proportion as suggested by losses in purchasing power. This decision addresses essential economic and labor law aspects relevant equally to companies and pension recipients.
Foundations of occupational pensions and adjustment review
Occupational pensions represent a key element of retirement security under German labor law and are legally regulated in particular by the Company Pensions Act (BetrAVG). According to § 16 BetrAVG, employers are generally required to review every three years whether ongoing occupational pension benefits need to be adjusted to current conditions.
Crucial here is the consideration of the company’s economic capacity along with the aspect of purchasing power loss and the general development of living costs. Employers are granted a certain margin of discretion – the law does not provide for an automatic increase of the company pension in line with the inflation rate.
Relevant criteria for the adjustment decision
The central issue in the case decided by the BAG was how references to purchasing power loss and entrepreneurial interests are to be concretely reconciled within the statutory adjustment review. Jurisprudence emphasizes that the need for adjustment of pension benefits must be examined based on a balance of interests between employer and pension recipient.
Purchasing power loss as one of several assessment elements
A mere reference to the inflation rate is, according to the BAG ruling, insufficient to trigger an adjustment obligation. Employers must weigh various factors against each other as part of their review, taking into account the course of purchasing power calculation. The absence of a full adjustment to changes in purchasing power is regularly not to be qualified as unreasonable in itself.
Economic situation of the company
A key criterion is the economic feasibility of the adjustment for the respective company. In particular, employers should not be legally forced to adjust company pensions if doing so would disproportionately burden the company’s economic basis. This approach ensures that occupational pensions remain both a responsibility towards pension recipients and a component of corporate stability.
Particularities of the current Federal Labor Court decision
The Federal Labor Court clarified in its current ruling that there is no automatic linking of the adjustment amount to the development of living costs, for example through indexing to relevant consumer price indices. This continues the general line of jurisprudence according to which even a longer period without adjustments is not automatically to be considered a breach of the adjustment obligation if the decision is substantively justified and properly documented.
Furthermore, the court emphasizes that the concrete design of the adjustment review must be case-specific and based on objectively comprehensible criteria. An automatic adoption of the inflation rate as the adjustment benchmark is explicitly not provided.
Practical consequences for companies and pension recipients
Especially in times of rising inflation, the requirements for conducting the adjustment review regularly are becoming increasingly important. Companies are encouraged to make decisions transparently and comprehensibly, using both internal economic data and external economic indicators.
Pension recipients, on the other hand, have no entitlement to a purely automatic increase of their company pensions, as long as the review is carried out appropriately according to § 16 BetrAVG and the interests of the pension recipient are balanced reasonably with the company’s economic concerns.
Conclusion and outlook
The ruling emphasizes the necessity of a balanced and fact-based decision within the framework of the statutory adjustment review of company pensions. The relevant parameters reach their limits where significant economic burdens would arise for the company or the adjustment would be considered abusive. In view of the requirements presented by jurisprudence, both companies and pension recipients should carefully consider the complex constellation of interests.
For companies and employees facing questions about occupational pension schemes and dealing with inflation-related adjustment requests, a thorough examination of the individual situation is advisable. For more complex legal questions regarding the occupational pension system and its adjustment mechanisms, you can obtain qualified legal advice in labor law from MTR Legal Attorneys.
