Investment & Wealth
Occupational pension scheme
terminate and cash out company pension scheme
Cancelling and Cashing Out Company Pension Schemes: Options and Pitfalls for Employees
Are you considering cancelling your occupational pension scheme (bAV) and having the capital paid out? This step often involves significant financial disadvantages. Find out here what hurdles exist and what smarter options you have.
The topic in brief and concise terms
Terminating an occupational pension scheme (bAV) is usually not possible and is often associated with significant financial disadvantages, such as additional tax payments.
Exceptions for termination and payout are rare, for example, in the case of very small pension entitlements (minor entitlements).
Alternatives such as a contribution suspension or transferring the contract to a new employer are generally more advantageous than cancellation.
Quick Facts: Termination of Occupational Pension Scheme – Key Points at a Glance
Termination of occupational pension schemes (bAV) is generally not possible without further ado. The legislator regards bAV as a long-term form of old-age provision, which is why an early payout rarely occurs and only under strict conditions. Often, the employer's consent is required, as they are usually the policyholder. Payouts generally only occur upon retirement, even if formal termination would be possible. A contribution exemption or the transfer of the contract to a new employer are often better alternatives.
Practical Part: When is termination and payout conceivable?
Although terminating occupational pension schemes and an immediate payout are exceptions, there are a few scenarios where this is possible. A so-called small entitlement may allow for a payout. For example, if the expected monthly pension in the year 2025 is less than €37.45, the contract may be settled in certain circumstances. In 2024, this threshold was €35.35 in the old federal states. In such cases, the employer can even unilaterally, that is, without the employee's consent, make a settlement of the accumulated capital. Termination during an ongoing employment relationship usually requires the consent of both parties and must not coincide directly with the termination of the contract. The vested rights play an important role in this.
The following conditions often need to be met for an exceptional termination:
There is an ongoing employment relationship.
The form of implementation is a direct insurance, pension fund, or pension scheme.
The employer as the policyholder agrees to the termination.
It is a small entitlement (the de minimis threshold according to § 3 (2) BetrAVG is not exceeded).
Even if these points apply, an immediate payout is not guaranteed and is often associated with significant costs. The precise conditions depend greatly on the individual case and the respective contract.
The Cost Trap: Financial Disadvantages of Terminating a Company Pension Plan
The termination of an occupational pension scheme can be costly. During the accumulation phase, employees benefit from tax and social security savings, as contributions are often made from the gross salary. However, in the event of an early termination and payout, these benefits are often reclaimed. This means that back-paid taxes and social security contributions can significantly reduce the payout amount. Additionally, insurers may charge administrative fees for dissolving the contract. In the worst-case scenario, these costs can exceed the accumulated capital, resulting in the employee receiving little or no payout upon termination, or even having to pay back money. Therefore, a careful assessment of the financial implications is essential before opting to terminate and cash out an occupational pension scheme.
Meaningful alternatives to terminating the company pension
Given the disadvantages of terminating a contract, employees should consider alternatives. A commonly used option is to make the contract contribution-free. In this case, no further contributions are made, but the capital already saved remains intact and continues to earn interest or be invested. Consequently, the subsequent pension payout will be correspondingly lower. This option is particularly worth considering in times of financial hardship or when a new employer does not offer to take over the contract. Another possibility is to transfer the accumulated capital to a new employer's pension scheme. This is often possible if the capital does not exceed a certain limit (e.g., 96,600 euros in the year 2025) and the job change occurred no more than a year ago. Privately continuing the contract with your own contributions is also an option. Before making a decision, it is advisable to conduct a thorough analysis of your situation and the contract conditions, ideally with expert advice. Also clarify what exactly happens when a contract is terminated.
Special case of changing employers: What happens to the occupational pension scheme?
A change of employer is a frequent reason to consider the future of occupational pensions. Termination is usually not the best solution here. Instead, there is often the option of so-called portability. If the accumulated capital does not exceed the contribution assessment ceiling of the pension insurance (€96,600 for 2025) and the change does not date back more than twelve months, the capital can be transferred to the provident fund of the new employer. This ensures the continuation of pension provision without the disadvantages of termination. If a transfer is not possible or desired, the contract can be made non-contributory or possibly continued privately. Termination by the employer is generally no longer possible after the announcement of a job change. It is advisable to inform oneself early about the options at the new employer.
Tax Aspects and Social Contributions in the Event of Termination and Payout
The tax advantages during the savings phase of the occupational pension scheme (bAV) can turn into disadvantages upon cancellation. If contributions are converted from gross salary, they are tax and social security free up to certain limits. In the event of an early capital payout, these saved taxes and social security contributions usually need to be repaid or taxed retroactively. This can lead to a significant reduction in the payout amount. The full tax liability on the payout amount (possibly mitigated by the fifth rule) as well as contributions to health and long-term care insurance on the capital payment must be considered. For a regular pension payment in old age, the payments are also subject to tax and contributions to health and long-term care insurance, often under more favourable conditions than a one-time payout. Find out how you can potentially optimise health insurance contributions with direct insurance or whether it makes sense to leave old insurance contracts unchanged.
nextsure: Your experts for occupational pension provision
Deciding whether to terminate an occupational pension scheme has far-reaching financial implications. As a digital insurance portal focusing on individual protection solutions, nextsure supports you in making the best decision for your situation. We analyse your contracts and transparently show you the pros and cons of termination, as well as possible alternatives. Our expertise in the area of occupational pensions helps you avoid pitfalls and optimise your pension plan. Benefit from our experience with over one thousand advised clients in the field of occupational pensions.
Request an individual risk analysis now: Have your insurance status checked free of charge and receive concrete suggestions for optimisation.
More useful links
Bundesministerium für Arbeit und Soziales (BMAS) provides information on occupational pensions.
Gesetze im Internet provides German legislation on occupational pensions (BetrAVG).
Deutsche Rentenversicherung offers a brochure on occupational pensions.
Wikipedia contains an article on occupational pensions.
Bundesregierung provides a publication on occupational pensions.
Deutsche Rentenversicherung explains salary conversion for occupational pensions.
FAQ
Is the cancellation of an occupational pension scheme generally ruled out?
Generally yes, as the legislator wants to promote long-term retirement provision. Exceptions are rare and subject to strict conditions, such as minimal entitlements or the employer's approval in certain implementation methods.
What role does the employer play in the cancellation of my occupational pension?
The employer is often the policyholder of the occupational pension contract. Therefore, their consent to the cancellation is required in many cases (e.g., with direct insurance, pension funds).
What does 'premium suspension' mean as an alternative to cancellation?
With a premium suspension, you no longer pay contributions into your occupational pension contract. However, the capital accumulated so far remains intact and will be paid out to you upon retirement (potentially reduced).
What tax implications should I expect upon payout?
An early payout usually leads to the subsequent taxation of the tax benefits received during the saving phase. Social security contributions may also become due. The payout itself is then fully taxable (potentially under the fifth rule).
What are minimal entitlements in the context of occupational pension cancellation?
Minimal entitlements are very small pension claims. If the monthly pension falls below a certain trifling threshold (e.g., 37.45 euros in 2025), the contract may be settled, meaning the capital can be paid out.
Can I easily transfer my occupational pension to a new employer when changing jobs?
Yes, this is often possible (portability), if the accumulated capital does not exceed a certain limit (e.g., 96,600 euros in 2025) and the job change was not too long ago (usually within one year).
