Under German law, employers are obliged to check regularly (at least every three years) whether benefit payments from company pensions ought to be adjusted for inflation. In their check they may consider the company’s economic situation. Employers are not obliged to increase pension payments if they believe (and such belief is reasonable with a sufficient degree of probability) that they will not be able to meet the inflation adjustment from the company earnings in the following three years.

In a recent case the claimant had been working for Dresdner Bank for many years and was receiving a company pension. In the past, Dresdner Bank had adjusted the company pension every three years in line with inflation, the last time with effect from 1 January 2007. In May 2009, Dresdner Bank merged with the defendant, Commerzbank. Commerzbank refused to adjust the company pension of the claimant as of 1 January 2010 on the grounds that its economic situation would not allow any increase.

The German Federal Labor Court – as well as the lower courts – dismissed the claim for an increase of the company pension. The court took the view that Commerzbank had the right to refuse any increase of the claimant´s company pension because of its economic situation: The bank had generated losses in 2008 and 2009 due to the financial crisis and was reliant on support from the Financial Market Stabilization Fund. Against this background, it was held that Commerzbank was justified in stating that the effects of the financial crisis on its economic situation would not allow any increase of the company pension in the period following 1 January 2010.

Please note that the employer´s duty to review the need for an adjustment of company pensions is deemed to be met if the pension increase in any three year period is not less than the increase of either the consumer price index in Germany or of the net salaries of comparable employees working in the company. No need for any inflation adjustments exists if companies commit themselves to an annual increase of the pension payments by at least 1%.