Investment & Wealth
Occupational pension scheme
employer-funded occupational pension
Employer-funded occupational pension: Your guide to a secure future
The employer-funded occupational pension scheme (bAV) is an important component of your financial security in retirement. However, many employees underestimate the complexity and the long-term effects of their decisions. This article highlights the advantages, points out potential disadvantages, and provides you with concrete recommendations for action.
The topic in brief and concise terms
The employer-funded occupational pension scheme offers tax advantages and a mandatory employer contribution of at least fifteen percent on salary conversion and social security savings by the employer. [3,1]
There are five implementation methods (direct insurance, pension fund, pensionfonds, support fund, direct commitment), whose choice significantly influences the occupational pension scheme (bAV). [1]
Entitlements from the company pension scheme can be non-forfeitable under certain conditions and can be carried over or adjusted when changing employers. [1,1]
Understanding the basics of employer-funded occupational pensions
The employer-funded occupational pension scheme (bAV) is a commitment by the employer to provide the employee with benefits for retirement, invalidity, or survivor's provision. [2] These benefits supplement the state pension and private retirement arrangements. [4] Since 2002, employees have had a legal right to salary conversion, where parts of their gross salary flow directly into the bAV. [3]
Employers can claim the contributions to bAV as operational expenses to reduce their tax burden. [3] For employees, this often means tax and social security savings during the accumulation phase. [3] The importance of bAV has steadily increased in recent years. The specific regulations are found in the Occupational Pensions Act (BetrAVG). [5] This Act forms the basis for all five implementation methods of bAV. [1] The choice of implementation method significantly influences the structure and flexibility of the provision.
Overview of five implementation methods of occupational pension schemes
Employers have five different implementation methods available for occupational retirement provision. [1] These are direct insurance, pension fund, pension plan (Pensionsfonds), provident fund (Unterstützungskasse) and direct commitment (also known as pension commitment). [1,2]
The most widely chosen form, especially in companies without collective agreements, is direct insurance. [5] Here, the employer takes out a pension insurance policy for the employee. [4] Pension funds and pension plans are independent legal entities. [2,4] Provident funds are also legally independent but do not grant entitlement to benefits. [2] Direct commitment is the only direct promise from the employer to provide benefits directly from the company’s assets. [1] Each implementation method has specific advantages and disadvantages regarding flexibility, costs, and insolvency protection that need to be carefully considered. A comparison of pension solutions is therefore essential. The complexity of the choice underscores the need for good advice.
Maximising benefits for employees and employers
The employer-funded occupational pension scheme offers numerous advantages for both parties. Employees benefit from tax and social security savings during the accumulation phase, as contributions are deducted directly from the gross salary. [3] Moreover, since 2019 (for new contracts) and 2022 (for old contracts), employers have been obliged to provide at least a fifteen percent subsidy if they save social security contributions through salary conversion. [1,2]
For employers, the advantages of occupational pension schemes lie in employee retention and motivation. [3] Additionally, they can claim the contributions as business expenses for tax purposes. [3] A well-designed occupational pension scheme can be a decisive factor in the competition for qualified professionals. It is important to review the individual situation to determine whether an occupational pension scheme is sensible. [1] The following list shows key benefits for employees:
Government support through tax and social security savings during the contribution phase. [5]
Mandatory employer subsidy of at least fifteen percent with salary conversion (if employer saves on social security). [1]
Building an additional retirement provision alongside the state pension. [3]
Protection of contributions against insolvency in most implementation methods. [2]
The option of survivor and disability coverage. [4]
These benefits make the occupational pension scheme an attractive model, whose details should, however, be carefully examined.
Consider tax aspects and social contributions
The tax treatment of employer-funded occupational pension schemes (bAV) is a key aspect. During the accumulation phase, contributions are tax-free up to eight percent of the contribution assessment limit of the statutory pension insurance (in 2025: 7,728 euros annually or 644 euros monthly). [2.5] Contributions are exempt from social security contributions up to four percent of this limit (in 2025: 3,864 euros annually or 322 euros monthly). [4.2]
In the payout phase, bAV benefits are subject to downstream taxation. [1] However, the individual tax rate in old age is usually lower than during working life. [1] Those insured by statutory health insurance must pay full contributions to health and long-term care insurance on company pensions (about eighteen percent); however, there is an allowance. [1] Our expert tip: Carefully check how the tax burden presents itself in the retirement phase and whether a direct insurance is fiscally optimal for you. Accurate calculation of levies is crucial for the net return on your provision. Careful planning helps avoid surprises in old age.
Handling occupational pension schemes when changing employers
A change of employer doesn’t have to mean the end of your employer-funded occupational pension scheme. [1] In principle, vested benefits can be carried over. [4] There are various options for what to do with an existing contract. Transferring the capital to the new employer is an option, provided they agree and offer a suitable pension scheme. [4] This is often possible with direct insurance, pension funds, and pension trusts if the contract was concluded after 2004 and the capital is below the contribution assessment ceiling. [3]
Alternatively, the contract can be continued privately or be made non-contributory. [3] The new employer is obliged to offer a form of occupational pension scheme, usually direct insurance through salary conversion. [3] Our expert tip: clarify your options for your occupational pension scheme with both your old and new employer at an early stage. The following list shows your options when resigning and occupational pension scheme:
Transfer of the contract to the new employer (portability). [4]
Private continuation of the existing contract with personal contributions. [3]
Suspension of contributions to the contract (dormancy). [3]
Conclusion of a new occupational pension scheme contract with the new employer. [3]
The right decision depends on many individual factors and should be carefully considered.
Keep up-to-date with current rulings and legal changes
The law of occupational pensions is subject to constant change. Recent judgements, such as those of the Federal Labour Court (BAG), can have an impact on existing commitments. [1,3] For example, in 2024 and 2025, the BAG has ruled several times on deviations from the statutory allowance obligation through older collective agreements. [2,3] The adjustment of pension commitments within a corporate group has also been the subject of judicial decisions. [1]
Further changes are planned for 2025, such as in contribution assessment ceilings and tax incentives. [5] It is therefore important to stay regularly informed about the current legal situation in order to avoid disadvantages or miss optimisation opportunities. The complexity of the subject often makes expert advice indispensable. [4] Many employers also wonder, which insurances they must pay, which includes occupational pension schemes. Continually monitoring legal developments is crucial for long-term secure pension provision.
Conclusion and your next step towards optimal retirement planning
Employer-funded occupational pension schemes are a valuable tool for securing your standard of living in retirement. They offer attractive benefits for both employees and employers, from tax savings to employee retention. [1,3] Choosing the right plan and considering all tax and legal aspects are crucial for success. [1,1] With the mandatory employer contribution of at least fifteen percent, occupational pensions have become even more attractive. [1]
Take advantage of the opportunities offered by employer-funded occupational pensions, but ensure you are well-informed. An individual analysis of your situation is the first step towards a tailored solution. nextsure supports you as a digital insurance portal in finding the right protection for you. We help you navigate the complexity and make an informed decision for your future. Careful planning of your retirement provision pays off in the long run.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific optimization suggestions.
More useful links
Wikipedia provides a comprehensive overview of occupational pensions.
The Deutsche Rentenversicherung offers a brochure on occupational pensions.
The Bundesministerium für Arbeit und Soziales (BMAS) provides detailed information on occupational pensions.
A publication by the Federal Government examines occupational pension schemes.
The Statistische Bundesamt (Destatis) publishes a press release on occupational pensions.
The Bundesfinanzministerium provides information on the tax treatment of occupational pensions.
The Betriebsrentengesetz (BetrAVG) is available on the Federal Ministry of Justice's website.
The IHK München offers information on occupational pension schemes.
Mercer presents solutions for pension schemes.
FAQ
What is the tax-free amount for employer-funded occupational pension schemes?
In 2025, up to €7,728 annually (eight percent of the contribution assessment ceiling) can be paid tax-free into an occupational pension scheme. Up to €3,864 annually (four percent of the contribution assessment ceiling) is exempt from social security contributions. [2,5,4]
What implementation methods are available for employer-funded occupational pension schemes?
There are five implementation methods: direct insurance, pension funds, pension schemes, support funds, and direct commitments (pension commitments). [1]
When are my claims from the occupational pension scheme vested?
In the case of salary conversion, immediately. For purely employer-funded commitments, typically after three years of service and reaching the age of 21 (regulation since 2018). [5,4]
Do I have to pay taxes and social security contributions on my company pension later?
Yes, company pensions are subject to deferred taxation. Those insured under statutory health insurance also pay full contributions to health and long-term care insurance on their company pension, although there is an allowance. [1,1]
Can I cancel my employer-funded occupational pension scheme and have it paid out?
An early termination and payout of the capital is generally not intended, as the occupational pension scheme is earmarked for retirement provision. Exceptions are very rare and tightly regulated by law.
What is the difference between an employer-funded and an employee-funded occupational pension scheme?
In a purely employer-funded occupational pension scheme, the employer covers the contributions. In an employee-funded scheme (salary conversion), the employee pays the contributions from their gross salary, with the employer often providing a subsidy. [4,1]
