HR-Glossar

Altersteilzeit (partial retirement)

How German partial retirement works in the block and the split model, what the top-up does and why the accrued credit must be secured.

1. What is Altersteilzeit (partial retirement)?

Altersteilzeit is a contractually agreed halving of working time in the final working years, combined with a top-up to pay and additional contributions to the state pension insurance. The legal basis is the Partial Retirement Act (AltTZG).

What matters is what partial retirement is not: an entitlement. The statute governs the conditions under which an agreement counts as partial retirement – it obliges no employer to offer it. The entitlement arises only from a collective agreement, a works agreement or an individual promise.

Working time is reduced to half the previous weekly hours. How that half is distributed over the term is the real design question – and it decides whether a credit arises that has to be secured.

For a group, that last sentence leads to the point that most often goes wrong: where a credit arises, the security for it must be separate from the company's own assets.

2. Origin and development

The Partial Retirement Act was introduced in 1996 as an instrument of labour market policy. The idea: older employees glide out of working life, and the vacated position is filled by an unemployed person or a trainee. For precisely that refilling, the Federal Employment Agency reimbursed the employer for the top-up payments.

That subsidy has expired; it covered only partial retirement relationships beginning up to the end of 2009. The statute itself continues to apply unchanged – but since then nobody else contributes. That has shifted the character of the instrument: partial retirement has gone from a subsidised labour market measure to a model of retirement transition funded purely by the business or by collective agreement.

It is therefore widespread above all where collective agreements provide for it – in the metal and electrical industry, the public sector and the chemical industry.

3. Core principles and how it works

Halving the working time, not the end of working life

The yardstick is the previous weekly working time, averaged over the term of the arrangement. Whether someone works half days throughout or first full time and then not at all is irrelevant to its classification as partial retirement.

The top-up as the heart of the agreement

The employer pays a top-up on the halved regular pay and additional contributions to the state pension insurance. Section 3 AltTZG sets the minimum for both; collective agreements frequently go beyond it.

The top-up is tax-free but not without consequence

The top-up is free of tax under Section 3 no. 28 EStG and free of social security contributions. It is, however, subject to the progression proviso – it therefore raises the tax rate on the rest of the income and regularly results in a compulsory assessment.

In the block model a credit arises

Working full time in the working phase while receiving only half the pay builds an entitlement met only in the release phase. That credit belongs to the employee – and it survives an insolvency only where it is secured.

Insolvency security is mandatory, not optional

Section 8a AltTZG requires the credit in the block model to be secured against the employer's insolvency, using means separated from the company's own assets. A balance sheet provision or a group guarantee does not suffice for this.

4. Who is Altersteilzeit (partial retirement) relevant for?

- Employees from the age named in the AltTZG – before that threshold an agreement is possible as a matter of employment law but is not partial retirement within the statute. - Businesses under collective agreements – there the entitlement frequently follows directly from the collective agreement, together with quotas and grounds for refusal. - Employers with an ageing workforce – for them partial retirement is a plannable transition rather than an abrupt loss of knowledge. - Payroll teams – the top-up, the progression proviso, the additional pension contributions and the valuation of the credit come together with them. - HR controlling and accounting – the block model creates an obligation that has to be shown in the accounts and affects liquidity.

5. How it differs from related terms

- Partial retirement and part-time work – part-time under the TzBfG is a pure reduction of hours without a top-up, without an age condition and without insolvency security. - Partial retirement and a long-term credit account under Sections 7b ff. SGB IV – the block model creates a credit but is subject to the separate security regime of Section 8a AltTZG. The two sets of rules sit alongside each other, not one above the other. - Partial retirement and early retirement – with early retirement the work ends entirely; with partial retirement the employment relationship continues to the end, including in the release phase. - Partial retirement and the pension – partial retirement is not drawing a pension. It typically ends with the transition into an old-age pension but does not replace one.

6. Variants and adaptations

The statute recognises two ways of distributing the time; the choice between them decides the effort and the risk:

- The split model (part-time model) – half the working time throughout the whole term. No credit arises and therefore no duty to secure it. The simpler route in payroll terms. - The block model – a working phase at full hours, then a release phase with no work, with pay staying the same across both. The standard case in practice, because it gives employees a genuine exit – and at the same time the more demanding one, because the credit, the insolvency security and the disruption event rules all apply. - Disruption event – where the employment ends before the credit has been used up, through death, reduced earning capacity or termination, the accrued credit must be settled separately. The agreement sensibly deals with this case expressly.

7. Advantages and challenges

Advantages

  • A plannable retirement transition instead of an abrupt departure — knowledge transfer can be scheduled
  • The top-up is free of tax and contributions and therefore works strongly on net pay
  • Additional pension contributions cushion the pension effect of the shortened hours
  • The block model gives employees a continuous release phase
  • Collective provisions give both sides a ready-made, tested framework

Challenges

  • No statutory entitlement — without a collective agreement or promise it remains a negotiation
  • The Federal Employment Agency subsidy has expired; the business bears the cost alone
  • The block model creates a long-term obligation with security and accounting effort
  • The progression proviso regularly leads to tax back payments employees do not expect
  • Disruption events are demanding to calculate and unregulated in many agreements
  • In the release phase the work is suspended but the employment is not — outside work stays limited

8. Best practices for implementation

Settle the insolvency security before the first payroll run

Section 8a AltTZG requires a means of security separated from the company's own assets. Settling it only once the credit exists means having already accrued it unsecured – and catching up is more expensive than setting it up. A parent company guarantee does not meet the requirement.

Spell out the disruption event in the agreement

Death, reduced earning capacity, termination, transfer of undertaking: for each of these it belongs settled how the credit is calculated and paid out. Without a rule the dispute arises exactly when nobody has capacity for it.

Explain the progression proviso actively

The tax-free top-up raises the tax rate on the rest of the income. Employees who learn this only from their tax assessment experience the top-up as a false promise. A word when the agreement is signed prevents that.

Align the end of partial retirement with the start of the pension

No gap may arise between the end of the release phase and the start of the pension. Coordinating that belongs at the beginning of the planning, not at its end.

9. Tips for employers and employees

For employers

  • **Read the collective agreement first** – it usually settles the entitlement, the quota and the grounds for refusal conclusively
  • **Set up demonstrable insolvency security** – Section 8a AltTZG requires separated means, not a provision
  • **Build the provision early** – the block model creates an obligation from the first month of the working phase
  • **Do not plan on refilling as a condition of subsidy** – the reimbursement from the employment agency no longer exists

For employees

  • **Obtain a pension statement beforehand** – only it shows what the halved hours cost despite the additional contributions
  • **Expect a tax back payment** – the top-up is tax-free but raises your tax rate
  • **Ask how the credit is secured** – in the block model it is your money held by the employer
  • **Agree any outside work in advance** – in the release phase the employment relationship continues

10. Conclusion

Partial retirement is not an entitlement but a framework: the statute says when an agreement *is* partial retirement and leaves the question of whether it exists to the collective agreement and the business. Since the reimbursement from the Federal Employment Agency expired, the business bears the top-up alone – partial retirement has thereby become an instrument of workforce planning rather than of labour market policy.

In practice the choice of model decides almost everything else. The split model is a part-time agreement with a top-up. The block model creates a credit and with it three duties that are regularly underestimated: the insolvency security under Section 8a AltTZG, the treatment in the accounts and a robust disruption event provision. Settling those three before the first payroll run puts the difficult part behind you.

For an international group the first of the three is the one that usually fails on the obvious answer. A parent company guarantee is not sufficient security here: Section 8a AltTZG requires means separated from the company's own assets, and a balance sheet provision does not meet it either. That has to be arranged before the credit starts accruing, not after.

A note on sources: there is no official English version of the Partial Retirement Act or the Income Tax Act (checked on 2026-09-28); the German texts are cited below and their wording governs. The values for the top-up and the additional contributions are in Section 3 AltTZG and are not reproduced here.

Sources

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