The company pension scheme (betriebliche Altersvorsorge, bAV) is, alongside the statutory pension and private provision, one pillar of retirement provision in Germany. Since 2002, employees in Germany have had a legal right to salary conversion (Entgeltumwandlung): this means they can convert part of their gross salary into a company pension and save for retirement that way. They benefit from tax and social security advantages.
The basic mechanism of the bAV is simple: part of the employee's gross salary is paid directly into a retirement contract before tax and social security contributions are deducted. This reduces taxable income, and the employee pays less wage tax and fewer social security contributions. In effect, the amount paid in costs the employee considerably less than the nominal contribution. Since 2019, employers must also add a mandatory share of 15 percent of the converted amounts as an employer subsidy. That is an additional bonus.
In Germany there are five routes (Durchführungswege) for a company pension: direct commitment, support fund, pension scheme (Pensionskasse), pension fund (Pensionsfonds) and direct insurance. The route employees use most is direct insurance (Direktversicherung), where the employer takes out a life insurance policy on the employee's life. Payout is as a pension or as a lump sum at retirement, depending on what is agreed.
The company pension scheme is for all employees in Germany, whatever the sector or company size. It is especially attractive for people with middle and higher incomes, who benefit strongly from the tax advantages, and for employees of companies that give generous employer subsidies and so actively support their staff's retirement provision.
When using the bAV, pay attention to the product's cost structure, return prospects, portability when you change employer and the effect on later pension entitlements.
We help you set up the right company pension solution so you can make full use of the advantages of this instrument.
Company pension scheme benefits
Benefits: lifelong retirement pension, one-off lump sum or a combination. Benefits for disability/death. Survivor protection.
5 routes: direct insurance (life/pension insurance, portable when changing jobs), support fund (Unterstützungskasse; contributions of any amount, tax-free), direct commitment/pension commitment (Direktzusage/Pensionszusage; employer organises it themselves), pension fund (Pensionsfonds; capital market investment), pension scheme (Pensionskasse; standardised products).
Tax advantages: contributions up to €8,112 a year tax-free (8% of the contribution assessment ceiling, BBG), up to €4,056 also free of social security contributions (4% of the BBG). Support fund/pension commitment: unlimited tax-free.
Employer subsidy: legally at least 15%, often 20-30%.
In retirement: fully taxed at your personal tax rate, plus contributions to health and long-term care insurance. Statutory health insurance (GKV) allowance €197.75 a month. When changing jobs: transfer possible depending on the route.