No discrimination in the calculation of the occupational pension of a part-time worker - Recent European Court of Justice ruling

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No discrimination in the calculation of the occupational pension of a part-time worker - Recent European Court of Justice ruling
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Date:
24 Aug 2017

In a judgment of 13 July 2017 (Case C-354/16), the European Court of Justice has ruled that the income of a part-time plan member must not be converted into a full-time income for the calculation of the occupational pension (in a defined benefit pension plan), even if the calculation method of the pension is based on a different percentage rate for the band below the remuneration ceiling than for the band above it. 

Ms Kleinsteuber worked part-time for a German company.

The occupational pension plan of this company is a defined benefit pension plan.  It provides that the calculation of the occupational pension is based on a formula which takes into account 0.6% of the reference remuneration band below the ceiling for calculating contributions to the state pension and 2.0% of the remuneration band above that ceiling. This constitutes a so-called “split pension formula” which applies to both full-time and part-time workers.

In the pension plan of this company, the income of a part-time plan member is first determined on the basis of the income of a full-time plan member before being reduced on the basis of the average rate of activity for the total duration of the employment relationship. The split pension formula is then applied to the reduced reference income (0.6% S1 + 2.0% S2).

Ms Kleinsteuber challenged this calculation method. She considers that the formula should apply first to the income of a full-time plan member.  Only then can a reduction be carried out on the basis of the part-time rate of activity. The calculation method supported by Ms Kleinsteuber is the one usually applied in Belgium.

The Court of Justice has reached the conclusion that the calculation method provided for in the occupational pension plan is not discriminatory. In other words, the income of a part-time worker in Germany must not be converted into the income of a full-time worker before the split formula is applied to it.

The Court recalls that the objective of the occupational pension is to complement the state pension. Hence, the objective of the occupational pension plan is to reflect at retirement the standard of living which the worker enjoyed during employment.

The “split pension formula” aims to take into account the different cover needs for remuneration bands below and above the ceiling for the calculation of contributions. There is no additional cover need for the remuneration band below this ceiling, even if this remuneration comes from a part-time activity. On the contrary, such cover would lead to the professional income of the plan member in question being artificially increased.

The Court considered the state pension and the occupational pension in aggregate for constituting the replacement income. 

> Key message

In most Belgian defined benefit pension plans with a “split pension formula”, the income of a part-time plan member is first converted into a full-time income before a part-time factor being applied to the pensionable service. In our view, this method is still correct despite this judgment since the ceiling for calculating the Belgian state pension of a part-time worker (less than 312 days full-time equivalent) is also prorated.