Entitlement to capital-forming benefits: Your path to state-subsidised wealth accumulation
24.06.25
7
Minutes
Katrin Straub
Managing Director at nextsure
Many employees in Germany are entitled to capital-forming benefits, but often do not know how to make the most of them. Find out how you can build up a substantial financial cushion with up to €40 a month from your employer and attractive state bonuses.
The topic in brief and concise terms
Almost every employee is entitled to capital-forming benefits (VL) of up to €40 per month from their employer.
State subsidies such as the employee savings bonus (up to EUR 80) and the housing construction premium (up to EUR 70) significantly increase the return.
The income thresholds for the employee savings allowance were raised in 2024 to €40,000 (single people) and €80,000 (married couples). [3,5§13]
Quick Facts on entitlement to capital-forming benefits – The most important points at a glance
Capital-forming benefits (VL) are cash benefits from your employer that help you build up assets. The amount is often up to 40 euros per month, i.e. 480 euros per year. Almost every employee, trainee, civil servant, judge and soldier may be entitled to capital-forming benefits. To receive VL, you must take out an eligible VL savings contract and inform your employer of this. The state also supports VL savings with the employee savings allowance and, under certain circumstances, the housing construction premium. These forms of support can increase your savings effort by a few percentage points. The exact conditions for entitlement to capital-forming benefits are often set out in the collective agreement, company agreement or your employment contract. Use this opportunity to actively shape your financial future, for example with a company pension scheme. Knowing these basics is the first step towards your additional assets.
Your route to VL – requirements and application in practice
Check entitlement: who has a right to the benefit?
Whether you are entitled to capital-forming benefits depends on various factors. In many sectors, entitlement is set out in collective agreements; however, it can also arise from a works agreement or directly from your employment contract. Employers can also pay VL voluntarily, even if there is no legal obligation. Part-time employees often receive VL on a pro rata basis, in line with their working hours. It is therefore worth asking your employer or HR department whether you are entitled to capital-forming benefits, and if so, how much. As a rule, entitlement begins after six months with the company.
Choose a savings contract: what types of investment are available?
If you are entitled to capital-forming benefits, you can choose from various types of investment. The most common are:
Building savings contracts: Ideal for future property owners, as they are often supported by employee savings allowances and the housing construction premium. They offer fixed interest rates for the savings and loan account.
Fund savings plans (e.g. equity funds, ETFs): Offer higher return potential, but are also associated with higher risks. They are supported by the employee savings allowance.
Bank savings plans: A safe but often lower-yield option, which is generally not subsidised by the state.
Repayment of a building loan: Existing property loans can be repaid more quickly with VL; the employee savings allowance is also available for this.
Occupational pension provision: VL can also be channelled into certain forms of VL retirement provision.
The choice of the right type of investment depends on your risk tolerance and savings goals. A private pension insurance policy can be another pillar of your retirement planning.
Step-by-step guide to applying
Applying for capital-forming benefits is straightforward. Simply follow these five steps:
Ask your employer or HR department whether you are entitled to VL and, if so, how much.
Find out about the various types of investment and choose the one that is right for you.
Take out a VL-eligible savings contract with a provider of your choice.
Provide your employer with a copy of the savings contract.
Your employer will then transfer the VL amounts directly into your contract.
This gives you an easy and effective way to secure the additional benefits. The next section shows how to make the most of government subsidies.
Make the most of government incentives – get more out of your VL
The employee savings allowance: Up to an extra €80 from the state
The employee savings allowance is a state subsidy for your entitlement to capital-forming benefits. Since 1 January 2024, new, higher income limits have applied: for single people, the limit is taxable annual income of €40,000; for married couples, €80,000. [3,5§13] The amount of the allowance depends on the type of investment: for fund savings plans, you receive twenty per cent on payments of up to €400 per year (maximum allowance €80). For home savings contracts or the repayment of a home loan, it is nine per cent on up to €470 (maximum allowance €43). An example: if you pay €400 a year into a fund savings plan, you receive an €80 allowance.
Housing construction premium: An extra €70 for home savers
If you invest your capital-forming benefits in a home savings contract, you can receive the housing construction premium in addition to the employee savings allowance. Separate income limits apply: €35,000 for single people and €70,000 for married couples. The premium is ten per cent on annual payments of up to €700 (single people) or €1,400 (married couples). This means a maximum annual premium of €70 or €140. It is important that the housing construction premium also requires your own contributions that go beyond the pure VL payments, provided the VL are already being used for the employee savings allowance. This premium is another incentive to consider a capital life insurance policy or other forms of saving.
Topping up is worthwhile: personal contributions for maximum support
If your employer pays less than the maximum eligible amount for capital-forming benefits, you can top up the difference from your own pocket. This is particularly worthwhile in order to make full use of the state subsidy. If the employer contribution is, for example, only €20 per month (€240 per year) for a fund savings plan, you could add another €13.33 per month (€160 per year) yourself to reach the eligible amount of €400 and receive the maximum employee savings allowance of €80. This flexibility makes entitlement to capital-forming benefits a valuable tool for your investment. With these optimisations in mind, let us now take a look at the legal details.
Expert knowledge of capital-forming benefits – legal basics and special cases
The Fifth Capital Formation Act (5th VermBG) as the basis
The legal basis for the entitlement to capital-forming benefits is the Fifth Capital Formation Act (5th VermBG). This Act sets out in detail who is entitled (§1), which investment forms are permitted (§2), and under what conditions the employee savings allowance is granted (§13). It also enshrines the option of investing part of one’s own wages in a capital-forming scheme (§11) and the free choice of investment form (§12). Knowing these sections helps you make full use of your own rights and options. The Act was last amended on 2 December 2024, with the adjustment of the income thresholds in §13 becoming relevant for VL from 1 January 2024.
VL for special groups: trainees, part-time workers, public sector employees
Entitlement to capital-forming benefits and their amount can vary for certain groups of people:
Trainees: Often have a collective agreement entitlement, for example 13.29 euros per month. They can also receive state support.
Part-time workers: Usually receive VL in proportion to their working hours. Toping this up from their own pocket is often particularly worthwhile here.
Employees in the public sector: Here, collective agreements (e.g. TVöD, TV-L) or special laws (for civil servants, judges, soldiers) govern entitlement. The amounts are often 6.65 euros per month. For employees covered by the savings banks collective agreement, it can also be 40 euros.
It is advisable to check the specific rules for your own professional group carefully. The 3 pillars of retirement provision provide a good framework for classifying VL.
Contract term, cancellation and changing employer
VL contracts typically have a term of seven years. This usually consists of a six-year contribution phase followed by a one-year dormancy period (blocking period). Once this period has expired, you can generally freely dispose of the accumulated assets. Early cancellation is possible, but often results in the loss of state support and may involve fees. However, there are exceptions, such as marriage or prolonged unemployment, under which cancellation without forfeiting support is possible. If you change employer, your VL contract remains in place; you should clarify with your new employer whether they will continue the payments. A direct insurance policy may also be affected by such rules. These aspects are important for long-term planning.
Our expert tip: review your VL contracts and your income situation at least every two years. Adjust your strategy if necessary so that you always receive the optimum support and achieve your savings goals. A change of investment form or an adjustment of your own contributions can be sensible if your circumstances change.
Conclusion: Your entitlement to capital-forming benefits as a valuable building block of your financial planning
Entitlement to capital-forming benefits is more than just a small extra from your employer – it is an effective way to build up assets with manageable effort and government support. With contributions of up to 40 euros per month from your employer and additional state bonuses such as the employee savings allowance of up to 80 euros and the housing construction premium of up to 70 euros per year, a substantial amount accumulates over the years. The various investment options offer suitable choices for every savings goal and risk appetite, from secure building savings contracts to return-oriented fund savings plans. Use your entitlement actively and find out about the best terms for you. It is a simple step with a major impact on your financial future. Also consider how VL can complement your unit-linked pension insurance. We at nextsure will be happy to help you analyse your individual situation and find the right solutions for building your wealth.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for improvement.
More useful links
The Federal Ministry of Finance offers a letter on the application of the Fifth Wealth Creation Act (VermBG).
On Laws on the Internet you will find the Act on Wealth Creation by Employees (Vermögensbildungsgesetz).
The Consumer Advice Centre offers comprehensive information on capital-forming benefits.
A press release from the Federal Statistical Office (Destatis) provides current data.
The Bundesbank publishes a study on wealth in Germany.
Wikipedia offers a comprehensive article on capital-forming benefits.
The Federal Agency for Civic Education (bpb) offers a dictionary entry on capital-forming benefits.
Another Act on the capital-forming investment of savings, the Federal Building Allowance Act, is available on Laws on the Internet.
The Federal Ministry of Finance offers a glossary entry on capital-forming benefits.
FAQ
Does my employer have to provide employee savings contributions?
There is not always a general statutory entitlement. The obligation to pay often arises from collective agreements, works agreements or the employment contract. Some employers also pay VL voluntarily.
Are capital-forming benefits taxable?
Yes, capital-forming benefits are part of wages and are therefore subject to income tax and social security contributions. However, the state allowances are tax-free.
What happens to my VL if I change employers?
Your VL contract is in your name and remains in place if you change employer. You should clarify with your new employer whether they will continue the payments into the existing contract.
Can I terminate my VL contract early?
Early termination is usually possible, but generally results in the loss of the state employee savings allowance and may involve costs. There are exceptional cases (e.g. marriage, unemployment) in which termination without loss of the subsidy is possible.
Which investment option is best for my VL?
The best form of investment depends on your individual goals and your appetite for risk. Building savings contracts are suitable for property plans, while investment savings plans offer greater return opportunities. Seek advice to make the optimal choice.
How do I apply for the employee savings allowance?
You apply for the employee savings allowance annually via your income tax return. Your investment institution transmits the data required for this electronically to the tax office after you have given your consent. [4,5§13,§15]
