Definition and Legal Foundations of the Flexi Pension
The Flexi Pension is a term from German social security law that, since 2017, has enabled a more flexible transition from working life to retirement. The aim is to provide employees with individual options regarding the start, scope, and design of pension receipt and employment in older age. The Flexi Pension has been established through several legislative amendments, in particular the “Law to Make the Transition from Working Life to Retirement More Flexible and to Strengthen Prevention and Rehabilitation in Working Life” (Flexirentengesetz) of December 8, 2016.
Scope of Application and Basic Requirements
Group of Eligible Persons
The Flexi Pension primarily affects those insured under the statutory pension insurance in Germany. It is aimed at individuals who have almost reached or surpassed the age limits for a pension entitlement. Eligible applicants include both employees and self-employed persons, provided they are mandatorily or voluntarily insured in the statutory pension insurance.
Requirements for Utilization
To benefit from the Flexi Pension, certain requirements must be met. This generally includes reaching a certain age threshold (regularly from age 63 for early retirement with deductions; from the statutory retirement age—currently between 65 and 67—without deductions). Additionally, a minimum insurance period must be satisfied (the so-called general qualifying period of five years).
Legal Structure of the Flexi Pension
Partial Pension and Additional Earnings (Before and After Standard Retirement Age)
Partial Pension
The option to claim a partial pension has existed for several years, but it was redesigned and simplified by the Flexi Pension. Insured persons can choose a partial pension ranging from 10 percent to 99.99 percent of the full pension. The amount of the partial pension depends on the amount of earned income received in addition to the pension.
Additional Earnings Limits
Before reaching the standard retirement age, there was, until 2017, a fixed additional earnings limit. With the introduction of the Flexi Pension, this rule was made more flexible and graduated. Since then, pension recipients may earn additional income annually in any amount without the pension being fully suspended; however, if the exemption amount (6,300 euros per calendar year until 2022, then dynamically adjusted) is exceeded, 40 percent of the surplus amount is deducted from the partial pension. After reaching the standard retirement age, pension recipients can earn unlimited additional income without any reduction in their pension.
Pension Insurance Contributions After Retirement Begins
Since the introduction of the Flexi Pension, employees who receive an old-age pension before reaching the standard retirement age and continue to work must continue to pay contributions to the pension insurance. These contributions cause the pension amount to increase each year. Employers are also required to pay pension insurance contributions.
Obligation to Pay Contributions When Receiving a Full Pension
After reaching the standard retirement age, employees are generally exempt from compulsory pension insurance. However, it is possible to waive the exemption and continue making mandatory contributions to further increase one’s own pension.
Incentive Instruments and Motivations
One of the core intentions of the Flexi Pension is to increase the labor force participation of older people. This is achieved, among other things, by allowing people who draw an early old-age pension with deductions to partially compensate for those deductions by voluntarily continuing to work and pay contributions. This creates a financial incentive to continue working or to return to employment.
Pension Calculation and Compensation for Deductions
Flexible Determination of Pension Amount
The amount of the pension depends on the age at which pension payments start, the number of insured years (pension points), additional earnings, and any extra contributions paid. Deductions due to early retirement can partly be compensated by additional contributions or by counting insurance years subject to contributions after pension commencement.
Compensation for Pension Deductions (§ 187a SGB VI)
Since 2017, it is permissible to compensate for pension deductions through additional payments into the statutory pension insurance before reaching the standard retirement age. In this way, insured persons can determine themselves to what extent and at what time they want to make up for financial losses.
Social Security Law Implications
Obligation to Contribute to Social Insurance Despite Drawing a Pension
When receiving a partial pension and continuing employment, social insurance contributions for health, nursing care, pension, and unemployment insurance generally remain obligatory, provided the relevant requirements are met. After reaching standard retirement age, the insurance law framework changes.
Effects on Other Social Benefits
The Flexi Pension can affect other social benefits such as unemployment benefits, basic security, or social assistance. When receiving such benefits, pension income and earnings are credited. This is particularly relevant when calculating supplementary social benefits.
Tax Law Aspects
When drawing the Flexi Pension, the pension received is subject to income tax. Since the pension reform, the taxable portion has been gradually increased (so-called deferred taxation). Additional earnings are also taxed at the personal tax rate.
Aims and Societal Background of the Flexi Pension
The concept of the Flexi Pension forms part of the political objective of enabling a flexible transition into retirement and promoting the employment of older people. It helps to make retirement planning more individual and to respond to demographic challenges such as the increase in life expectancy and the decline of large birth cohorts.
Literature, Legal Sources and Further Information
- Gesetz zur Flexibilisierung des Übergangs vom Erwerbsleben in den Ruhestand und zur Stärkung von Prävention und Rehabilitation im Erwerbsleben (Flexirentengesetz), BGBl. I 2016, S. 2838
- Sozialgesetzbuch VI (SGB VI)
- Information provided by Deutsche Rentenversicherung
Note: This article provides general legal information and does not substitute for individual legal advice. Further information can be obtained from the Deutsche Rentenversicherung.
Frequently Asked Questions
What are the legal requirements that must be met to claim the Flexi Pension?
To claim the Flexi Pension, insured persons must not have fully reached the standard age for the old-age pension. It is required that at least 35 insurance years (waiting period) in the statutory pension insurance are fulfilled in order to be eligible for an old-age pension for long-term insured or an early regular old-age pension. Additionally, after drawing the early pension, certain additional earnings limits must not be exceeded if the pension is received before reaching the standard retirement age, otherwise the pension will be partially reduced or the earnings offset against the payment. The Flexi Pension applies legally only within the context of statutory pension insurance, explicitly excluding self-employed occupations or civil service status. A written application to the Deutsche Rentenversicherung is mandatory. Furthermore, the transition from employment to retirement must be gradual, with working hours, pension amount, and any supplementary contributions carefully documented according to the extent of employment.
How does the Flexi Pension affect existing social security entitlements?
Legally, when employed while receiving the Flexi Pension, contributions to the statutory pension insurance must continue to be paid for the duration of the employment, provided the employment relationship remains subject to compulsory insurance. This results in the acquisition of further pension entitlements, which are retrospectively taken into account as pension increases after the end of the calendar year. The obligation to pay health, nursing care, and unemployment insurance generally remains, with the pension itself being subject to contributions in the health and long-term care insurance for pensioners. The combination of employment and drawing a pension can, depending on the individual case, lead to a split in contributions or benefits, which must be reviewed individually. Additionally, the consideration of additional earnings when calculating certain social benefits, such as housing allowance or basic security, is legally relevant and may lead to a reduction in these benefits.
What rights and obligations arise when the additional earnings limit is exceeded?
If the legally established annual additional earnings limit is exceeded, the pension recipient is obliged to report this immediately to the Deutsche Rentenversicherung. In the event of an overrun, the pension payment will be proportionally reduced according to statutory offsetting rules—a portion of the additional earnings remains exempt (so-called additional earnings allowance). The earnings above this amount are offset at 40% against the pension (§ 34 SGB VI). If notification obligations are breached, this may result in repayments, interest on arrears, and potentially administrative fines. The annual thresholds and allowances may change by law and must be reviewed anew for each year.
To what extent does the Flexi Pension affect the employment relationship and protection against dismissal?
Legally, an existing employment relationship is not automatically terminated by claiming the Flexi Pension. The employment relationship can be continued with reduced working hours and an accordingly adjusted employment contract. All general and special protection against dismissal provisions under the Dismissal Protection Act (KSchG) and other collective regulations (collective agreements, works agreements) continue to apply. Mutually agreed changes to the employment contract, such as reducing working hours or changing the area of responsibility, generally require a new contractual agreement. The employer may not terminate the employment relationship solely because of the use of the Flexi Pension; doing so would constitute discrimination and would be legally contestable.
What tax obligations result from combining pension receipt and additional earnings?
Legally, the old-age pension constitutes taxable income within the meaning of the Income Tax Act (§ 22 No. 1 Sentence 3 Letter a EStG). The taxable amount of the pension depends on the year of pension commencement (so-called deferred taxation). Additional earnings from employment are additional taxable income, for example from non-self-employed work (§ 19 EStG) or self-employment (§ 18 EStG). Both types of income are added together and may increase the individual tax burden and lead to additional tax payments. Pension recipients who receive a Flexi Pension and earn additional income are required to submit a tax return if tax-free allowances (basic allowance) are exceeded. In particular, there may be tax progression if substantial additional income is generated in addition to the pension.
How are claims legally regulated in the event of death of the Flexi Pension beneficiary?
In the event of the death of a Flexi Pension beneficiary, the statutory provisions regarding survivor benefits pursuant to §§ 46 ff. SGB VI apply. There is an entitlement to a widow’s, widower’s, or orphan’s pension if the general conditions are met (such as a minimum insurance period of the deceased). Outstanding additional earnings claims or pension payments received without justification must be repaid to the pension insurance. Claims from the employment relationship (outstanding salary, remaining vacation, etc.) generally form part of the estate and must be asserted by the heirs under civil law.
What legal options exist to voluntarily forgo pension shares or suspend the Flexi Pension?
In principle, insured persons have the right to temporarily forgo payment of their old-age pension or to suspend the Flexi Pension upon written application to the Deutsche Rentenversicherung. Such a waiver is particularly advisable if the additional earnings limits are exceeded and, as a result, a significant reduction of the pension is imminent, or if one wishes to achieve periods that will increase the pension amount. The waiver is legally binding and can generally be revoked only for the future. If the pension begins at a later date, higher monthly pension payments usually result due to so-called pension bonuses for later commencement.
