Cancelling and cashing out occupational pension schemes: assessing options and consequences clearly
30.05.25
9
Minutes
Katrin Straub
Managing Director at nextsure
Are you thinking about cancelling your occupational pension scheme (bAV) and having the capital paid out as a lump sum? This is a step that should be carefully considered, as it often carries more disadvantages than advantages. We’ll show you what you need to know and which smarter options there are for your financial future.
The topic in brief and concise terms
Cancellation of occupational pension provision (bAV) is usually not provided for by law and often leads to significant financial disadvantages due to back tax payments.
Alternatives such as making the contract paid-up or transferring the occupational pension contract are usually more sensible than cancelling it.
The payout of the occupational pension capital is usually made only when you reach retirement age, even if cancellation would be possible.
The reality of cancelling occupational pension provision: often not possible and rarely advantageous
Many employees consider cancelling their occupational pension scheme (bAV) in order to gain access to money quickly. In reality, however, things usually look different: under the law, ordinary cancellation by the employee is generally not предусмотрed. The main reason for this is the purpose of the bAV pension provision; the capital is intended to secure your retirement income in old age. An early payout contradicts this fundamental objective and is therefore only conceivable in strictly defined exceptional cases. The hurdles for cancellation are deliberately set high. Bear in mind that the policyholder’s contractual partner is usually your employer, whose consent is often required. Even if cancellation were theoretically possible, the capital is in most cases not paid out until the normal retirement age. Immediate access to the money is therefore usually an illusion. This makes a careful examination of the alternatives essential.
Major cost trap: Tax and social security disadvantages on payout
Should an early payout of the occupational pension capital occur in exceptional cases, you must expect significant financial disadvantages. During the accumulation phase, you benefit from tax and social security contribution savings, as contributions are made from gross income. In the event of an early payout, these advantages are reversed. You must repay the taxes and social security contributions saved up to that point. In addition, there are often administration fees charged by the insurer, which further reduce the payout amount. In the worst case, these repayments and costs can even exceed the accumulated capital, resulting in a genuine financial loss. Correct tax treatment is crucial here. You should definitely take these financial consequences into account before pursuing cancellation any further.
Exception for Small Pension Entitlements: When a Lump-Sum Payment Is Possible
One of the few exceptions in which an early payout of your bAV may be possible is the so-called small entitlement. A small entitlement is referred to when the expected monthly pension from the bAV does not exceed a certain threshold. For 2025, this de minimis threshold is around EUR 37 per month in the old federal states. If your entitlement is below this, you may be able to claim compensation, even without the employer’s consent. The exact rules can be found in the Occupational Pensions Act (§ 3 BetrAVG). The following points are relevant here:
The amount of the pension is calculated at the time of application.
The compensation sum corresponds to the capital built up.
Taxes and social security contributions are also due when a small entitlement is compensated.
The application must be made actively by the employee.
Check carefully whether your bAV falls under this rule. Even if it does, the decision should be well considered, as this also reduces retirement provision. It remains important to assess whether a transfer of the bAV would not be more sensible after all.
Practical alternative 1: contribution-free status for your occupational pension scheme
If you can no longer or no longer wish to pay the ongoing contributions for your occupational pension scheme, cancellation is rarely the best option. A much more flexible and often more advantageous option is to make the policy contribution-free. In this case, you stop paying contributions, but the capital you have accumulated so far remains in the contract and continues to earn interest. Your entitlement to a later, albeit lower, company pension remains in place. Contribution-free status avoids the disadvantages of cancellation, such as back taxes. As a rule, only small administrative fees are charged for the changeover. This option gives you financial breathing space without giving up your retirement provision altogether. You can often resume contributions later. Consider whether this is not a better solution for your situation than recklessly putting the value of old contracts at risk.
Practical alternative 2: Transfer of occupational pension provision when changing employer
A common reason for considering terminating the occupational pension scheme (bAV) is a change of employer. However, there are better solutions here too than a hasty cancellation. The German Occupational Pensions Act provides for the option of transferring the accrued capital to the pension provider of the new employer (§ 4 BetrAVG). This is usually possible if:
The transfer value does not exceed a certain limit (approx. EUR 96,600 in 2025).
The application for transfer is submitted within one year of changing jobs.
The new employer and its pension provider agree.
It is a direct insurance policy, pension fund or pension scheme.
The transfer secures the continuation of your retirement provision without any loss. This allows you to continue saving for your occupational pension scheme seamlessly. Clarify the options early with your former and new employer. The question of what happens to the bAV when the employment relationship ends can thus often be answered positively.
Expert-level depth: understanding legal fundamentals and pitfalls
Termination and payout of a bAV is a complex field governed by the Occupational Pensions Act (BetrAVG). Central to this is Section 1b BetrAVG, which regulates the vesting of entitlements. This means that your claims remain protected after a certain period (usually three years’ service and a minimum age of 21), even if you leave the company. However, as mentioned, termination with immediate payout is only предусмотрed in exceptional cases such as a small entitlement (§ 3 BetrAVG). Our expert tip: do not underestimate the employer’s requirement to consent. As the employer is often the policyholder, they may object to termination in order not to jeopardise their own obligations arising from the pension commitment. In the case of employer-financed bAV, the hurdles are even higher. Optimising charges is more likely to be achieved at the pension payment stage than through termination. If in doubt, always seek expert advice to avoid costly mistakes.
Despite possible financial shortfalls or changing life plans, the importance of occupational pension provision should not be underestimated. Alongside the statutory pension and private provision, it is one of the three pillars of retirement provision in Germany. Thanks to state support during the accumulation phase (tax and social security savings) and the often mandatory employer contribution (at least fifteen per cent in the case of salary conversion), it is an attractive retirement planning tool. Cancelling and cashing out the occupational pension scheme not only leads to financial disadvantages, but also reduces your future pension and therefore your standard of living in retirement. Think long term and carefully consider all alternatives. Is an occupational pension scheme generally worthwhile for your situation? Usually, yes. Before making a final decision, professional advice can help you find the right solution for you and optimise your retirement provision. The option of deducting contributions to the occupational pension scheme for tax purposes is also an important advantage.
Conclusion: only cancel the occupational pension scheme in an emergency – consider alternatives!
Ending and cashing out a company pension scheme is only a good idea in very rare cases and is often not possible at all. The financial disadvantages caused by back payments of tax and the loss of social security contributions weigh heavily. It is better to consider alternatives such as a contribution-free status or transferring the contract when changing employers. These options preserve at least part of your valuable retirement provision. A well-founded decision requires a careful analysis of your situation. Weigh the short-term need against the long-term consequences for your pension. Remember that even small monthly contributions over many years can result in a substantial additional pension. Early cancellation of other insurance policies should also be carefully considered. We at nextsure are happy to help you analyse your individual situation and develop the best strategy for your retirement provision.
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 Justice provides the Occupational Pensions Act (BetrAVG) in full text, the key legal basis for occupational retirement provision.
The Federal Ministry of Labour and Social Affairs (BMAS) offers information on income and assets in the context of social benefits, which can be relevant when assessing occupational pension payouts.
The Finanzamt.NRW provides detailed information on the tax treatment of benefits from occupational pension schemes.
The AOK explains the rules on health insurance contributions for pension benefits, which also include occupational pension benefits.
The Techniker Krankenkasse (TK) offers insights into allowances and contribution calculations in occupational pension schemes.
The German Pension Insurance provides a comprehensive brochure on occupational pension schemes, highlighting important aspects and regulations.
The Federal Statistical Office (Destatis) supplies official statistics and press releases that can provide relevant background information on economic and demographic developments.
FAQ
Under what conditions is cancellation of the occupational pension scheme (bAV) even possible?
Termination is only possible in very limited exceptional cases, e.g. in the case of a so-called small entitlement (a very low expected pension) or sometimes with the employer’s consent, although payment is usually still made only at retirement age.
What tax implications does a company pension payout have?
On payment out, especially if taken early, the tax advantages received during the savings phase must be repaid. The capital is fully taxable, and social security contributions apply.
What does 'vesting' mean in occupational pension provision?
Vesting means that your entitlements from the occupational pension scheme (bAV) are retained even after the employment relationship ends, provided certain requirements (e.g. minimum qualifying period, minimum age) are met. This is regulated in § 1b BetrAVG.
Can my employer refuse to terminate my occupational pension scheme?
Yes, as the employer is generally the policyholder of the occupational pension contract, their consent to termination is usually required. They may refuse this in order to ensure the pension purpose is maintained.
What is the current de minimis threshold for small entitlements?
The de minimis threshold for a possible commutation of a small entitlement for 2025 is a monthly pension of approx. 37 euros (West). This value can be adjusted annually.
What alternatives are there to cancelling my occupational pension scheme?
The most common and often better alternatives are making the contract paid-up, transferring it to a new employer, or in some cases continuing it privately.
