Company Pension Schemes: Their Importance and How to Benefit Optimally
18 Jun 2025
3
Minutes
Katrin Straub
CEO at nextsure
The statutory pension alone is often no longer sufficient to secure your standard of living in retirement. Occupational pension schemes (bAV) are therefore becoming significantly more important. Learn how you can benefit from bAV and which aspects are crucial.
The topic in brief and concise terms
Occupational pensions (bAV) are an important supplement to the state pension, becoming attractive through salary conversion and employer contributions.
Employees benefit from tax and social security savings during the accumulation phase; contributions are tax-free up to 7,248 euros annually (2024).
There are five implementation methods (e.g. direct insurance, pension funds), the choice of which affects return, security, and flexibility.
Quick Facts: Occupational pension at a glance
Company pension schemes (bAV) refer to employer-provided benefits for retirement, disability, or death. They are an important part of the German three-pillar model of retirement provision. Since 2002, employees have been legally entitled to salary conversion. This means that parts of the gross salary flow directly into the bAV. Employers have been required to contribute a 15 percent subsidy for new contracts since 2019 if they save on social security contributions. This regulation makes bAV more attractive for many employees. Thus, the bAV serves as a tool for employee retention and closing the pension gap. Learn more about the three layers of retirement provision.
Practical Part: How Occupational Pensions Work in Everyday Life
Occupational pensions become a reality through various implementation methods chosen by the employer. There are five main forms: direct insurance, pension funds, pension schemes, support funds, and direct commitment. In the case of direct insurance, the employer, for example, takes out life insurance for you. In 2021, there were 5.29 million active direct insurance contracts in Germany. Contributions can be made tax-free up to eight percent of the contribution assessment ceiling (West 2024: 90,600 euros); that's 7,248 euros. You can save social security contributions up to four percent of the contribution assessment ceiling, which is up to 3,624 euros annually (as of 2024). Here's a calculation example: With a monthly salary conversion of 100 euros and a 15 percent employer subsidy, 115 euros flow into your contract. Many employees underestimate the effect of compound interest over decades. The tax deductibility of direct insurance is a clear advantage. These practical aspects illustrate the direct benefit of occupational pensions for your retirement provision.
Example calculation for salary conversion
Assuming an employee converts 200 euros of their gross salary monthly. The employer adds the legally required subsidy of 15 percent (30 euros), as they save on social security contributions. Thus, 230 euros flow into the occupational pension contract each month. Over a term of 30 years and an assumed annual return of three percent, this could result in a capital of over 100,000 euros. This illustrates the potential.
Comparison of implementation methods
The choice of implementation method affects cost, flexibility, and investment options. Here's a brief overview:
Direct insurance: Widely used, easy to handle, often with guaranteed benefits. In 2023, there were 8.78 million such contracts.
Pension fund: Legally independent institution, similar to an insurance company. Around 3.41 million contracts existed in 2023.
Pension scheme: Offers higher return opportunities through more liberal investments, but also higher risks. About 0.65 million contracts in 2023.
Support fund: Often with larger companies, no direct legal claims against the fund. About 4.99 million insured individuals (together with direct commitments) in 2021.
Direct commitment (pension commitment): The employer makes internal provisions and pays the pension directly.
Each method has specific advantages and disadvantages that need to be weighed in each individual case. The benefits for employers are also varied. The complexity of these options emphasizes the need for good advice.
Expert depth: Legal fundamentals and design tips
The Occupational Pensions Act (BetrAVG) has formed the legal basis of company pension schemes since 1974. Among other things, it regulates eligibility requirements and the vesting of entitlements. Employer-financed promises generally become vested after three years of service and upon reaching the age of 21. Contributions from salary conversion are vested immediately. An important aspect is insolvency protection: In most implementation methods, your claims are protected by the Pension Security Association (PSVaG). Our Expert Tip: When changing jobs, check the options for transferring your company pension scheme. Often it is possible to transfer the capital if the value does not exceed the contribution assessment limit. For low-income earners (up to €2,575 gross monthly in 2024), there is the company pension scheme subsidy: The state subsidises employer contributions of at least €240 annually with 30 percent, up to a maximum of €288. This can significantly increase the return. Exact knowledge of paragraphs like § 1a BetrAVG (salary conversion) or § 3 Nr. 63 EStG (tax exemption) is essential for optimal planning. The tax treatment of company pension schemes offers significant advantages. Careful planning and use of these regulations is crucial for the success of your retirement provision.
Current Rulings and Developments
The case law on company pension schemes is constantly evolving. For example, the Federal Finance Court (BFH) has repeatedly commented on deferred taxation and the application of the fifth rule in the case of capital payouts. It is important to keep an eye on current rulings as they can impact contract design and payouts. For instance, it has been clarified that strict criteria apply for the application of the fifth rule when partially paying out capital. Additionally, the government is planning further adjustments to make company pensions more attractive, especially for low-income earners and small businesses. A draft law proposes to raise and dynamise the income limit for the low-income earner subsidy.
Design Tips for Employees
Take advantage of your salary conversion entitlement and employer subsidy. Here are some tips:
Start Early: The earlier you start with company pension schemes, the more you benefit from compound interest. Even small contributions over 30 to 40 years can result in a substantial amount.
Utilise Maximum Support Framework: Use up the tax-free and social security-free maximum amounts wherever possible. In 2024, this is up to €7,248 tax-free and €3,624 free from social contributions.
Demand Employer Subsidy: Insist on the legal subsidy of 15 percent if your employer saves on social security contributions.
Check Contract Details: Pay attention to costs, guaranteed benefits, and flexibility of the contract, especially in the event of a possible change of employer.
Seek Professional Advice: Company pension schemes are complex. Professional advice helps find the optimal solution for your individual situation.
These tips help you set the course for a solid additional retirement provision. The question of whether a company pension scheme is sensible can usually be positively answered. However, the exact design is crucial.
Weighing the advantages and disadvantages of occupational pension schemes
Occupational pension schemes offer numerous advantages. Employees benefit from tax and social security savings during the accumulation phase. The employer's contribution of at least 15 per cent further increases the return. The claims are often protected against insolvency, and there are simplified health checks for additional modules. For employers, the occupational pension scheme (bAV) is a tool for employee retention and can reduce ancillary wage costs. However, there are also disadvantages: the net salary during the payment phase is lower. The future pension is fully taxable and, for those legally insured, subject to contributions in the health and long-term care insurance, although there are allowances. Access to the capital before retirement (earliest 62 years) is usually not possible. When changing employers, transferring the contract may encounter hurdles if the capital exceeds 96,600 euros (as of 2025) or if the change is more than twelve months ago. Careful consideration of these aspects is important before concluding a contract. The occupational pension scheme for entrepreneurs has its own facets. A well-founded decision secures long-term advantages.
Your path to optimal occupational pension provision
Company pension schemes are a valuable tool for securing your financial future. Despite their complexity, the advantages for many employees prevail, particularly through government support and employer contributions. In 2019, a distribution rate of approximately 53.9 percent among employees subject to social security contributions highlights its importance. However, on average, the occupational pension plan accounts for only about eight percent of retirement income. To fully harness its potential, individual advice is essential. At nextsure, we assist you in finding the right solution and setting the course for a worry-free retirement. Use our expertise for your retirement planning. As a digital insurance portal, we offer comprehensive and easily understandable insurance solutions.
Request your individual risk analysis now: Get your insurance situation checked for free and receive specific optimisation suggestions.
More useful links
Wikipedia provides a comprehensive overview of occupational pensions in Germany.
The GDV (Gesamtverband der Deutschen Versicherungswirtschaft) provides statistics on contracts for occupational pensions in the German insurance industry.
The ABA (Arbeitsgemeinschaft für betriebliche Altersversorgung) provides statistics on the spread of occupational pensions in Germany.
The ABA (Arbeitsgemeinschaft für betriebliche Altersversorgung) delivers statistics on the benefits and payouts of occupational pensions.
The Federal Ministry of Labour and Social Affairs (BMAS) issues a press release about a survey on the spread of occupational pensions.
The Federal Ministry of Labour and Social Affairs (BMAS) offers information on retirement income and additional pension options.
The Deutsche Rentenversicherung provides a brochure on occupational pensions.
Statista offers a topic page with comprehensive statistics and data on occupational pensions.
Deloitte presents a study on occupational pensions (bAV).
Wikipedia provides information on the German Occupational Pensions Act.
FAQ
What is the significance of occupational pensions for my retirement?
Company pension schemes are an important second pillar alongside state pensions and private savings. They help to close the retirement income gap and maintain one's standard of living, as the state pension is often not sufficient.
What is the employer's contribution to the occupational pension scheme?
Employers must contribute an additional 15 per cent of the converted salary if they save on social security contributions through the employee's salary conversion. This obligation applies to new contracts since 2019 and to existing contracts since 2022.
What tax benefits does the company pension scheme offer?
Contributions to occupational pension schemes through direct insurance, pension funds, and pension plans are tax-free up to eight percent of the contribution assessment ceiling for pension insurance (2024: €7,248). Additionally, up to four percent (2024: €3,624) are exempt from social security contributions.
What happens to my occupational pension scheme when I change employers?
When changing employers, there are several options. Entitlements from salary conversion are immediately vested. The contract can often be suspended without contributions, continued privately, or transferred to the new employer under certain conditions (portability). A transfer is possible if the value does not exceed the social security contribution ceiling and the change is not too long ago.
What implementation methods of occupational pensions are there?
There are five implementation methods: Direktversicherung, Pensionskasse, Pensionsfonds, Unterstützungskasse, and Direktzusage (also known as Pensionszusage). The employer selects the implementation method.
Is the capital in occupational pension schemes safe in the event of the employer's insolvency?
Yes, in most cases, claims from occupational pension schemes are protected by the Pension Protection Fund (PSVaG) in the event of an employer's insolvency. This applies particularly to direct commitments, support funds, and under certain conditions, also to pension funds and pension schemes.
