Surrender Value of Occupational Pension: Options, Costs, and Smart Alternatives for Your Company Pension
18 May 2025
3
Minutes
Katrin Straub
CEO at nextsure
Are you considering the surrender value of your company pension scheme? Cancellation is often associated with high losses and is rarely possible. Find out here what pitfalls await and what better options you have.
The topic in brief and concise terms
The surrender value of an occupational pension is often only a fraction (20-30%) of the contributions paid, due to high costs and additional tax payments.
Termination of the occupational pension scheme is only possible in exceptional cases such as a minimal entitlement (under approximately €37 monthly pension) or with the employer's consent.
Alternatives to cancellation, such as premium exemption or contract transfer in case of a job change, are usually the financially better options.
Surrender Value of Occupational Pension: What You Need to Know
The surrender value of an occupational pension scheme (bAV) refers to the amount that would be paid out in the event of a premature termination of the contract. This value corresponds to the saved contributions including interest and profits, minus all administrative and initial costs as well as potential tax repayments. Terminating the bAV is legally severely restricted, as it contradicts the goal of provision. In most cases, a surrender involves significant financial losses. The importance of the bAV as long-term provision is evident here. Therefore, the decision for a surrender should never be made lightly.
High losses imminent: The reality of the surrender value
The payout of the full contract balance is an illusion when buying back a company pension insurance. Often, the surrender value only covers twenty to thirty percent of the contributions paid. This means a potential loss of seventy to eighty percent of your retirement funds. Furthermore, cancelling it means that no additional retirement provision is built up. Taxes and social contributions saved during the accumulation phase become immediately due upon cancellation. It can even happen that these repayments, along with administrative costs, exceed the accumulated amount. A careful assessment of whether a company pension insurance is sensible is therefore essential.
Termination of occupational pension scheme: Only possible in exceptional cases
Ordinary termination of occupational pension schemes by the employee is generally excluded. The legislator wants to ensure that the accumulated capital is actually used for retirement provision. However, there are a few exceptional situations where termination might be conceivable:
Minimal Entitlement: If the expected monthly pension falls below a certain minimum threshold (e.g., 37.45 euros in 2025), the contract can be terminated without the employer’s consent.
Employer's Consent: During an existing employment relationship, the employer can agree to a termination, but is not obliged to do so.
Termination of Employment: Under certain circumstances, a severance payment can be negotiated following departure from the company, based on the surrender value.
Even if termination is possible, the financial disadvantage often outweighs the short-term benefit. The option to take the occupational pension scheme with you should always be considered.
Tax Pitfalls in Surrender Value
The tax treatment of the surrender value of an occupational pension scheme is complex and often disadvantageous. If the contributions to the occupational pension scheme were tax-exempt (according to § 3 No. 63 EStG), the entire surrender value is fully taxable. This means that the tax advantages gained during the accumulation phase are nullified. For contributions taxed at a flat rate (according to § 40b EStG a.F.), usually only the profit portion is taxed. The subsequent taxation can significantly reduce the amount paid out. It is advisable to seek individual advice to understand the exact impact on the tax burden of the occupational pension scheme. An ill-considered termination can lead to an unexpectedly high tax demand.
Meaningful alternatives to terminating your occupational pension scheme
Given the significant disadvantages of termination, you should always consider alternatives. A commonly used option is to suspend the contributions. You don't pay any further contributions, but the accumulated capital remains preserved and continues to earn interest until retirement age. Usually, only minimal administrative fees apply. Another option with a change of employer is the transfer of the contract balance to the new employer, provided certain conditions are met (e.g., accumulated capital under €96,600 in 2025, job change no more than a year ago). Consider the following points:
Check the possibility of suspending contributions.
Explore the option of transferring the contract to the new employer.
Have the vesting of your rights checked.
Find out about the exact conditions with your provider.
Suspending contributions is often the financially smartest decision to avoid losses. These alternatives secure the capital you have accumulated for retirement.
Expert Tips: How to Handle the Topic of Surrender Value
Handling the surrender value of occupational pension schemes requires foresight. Our expert tip: Do not act rashly. Termination should always be the last resort, pursued only after all alternatives have been carefully considered. Be sure to seek professional advice to assess the individual consequences of termination or the benefits of alternative solutions for your occupational pension scheme. Document all steps and agreements meticulously. An informed decision protects your wealth for retirement. Remember that statutory regulations, such as the Occupational Pensions Act (BetrAVG), provide the framework and aim to protect pension entitlements.
Understanding Legal Foundations and Vesting
The Betriebsrentengesetz (BetrAVG) forms the legal basis for occupational pensions in Germany. It regulates, among other things, the vesting of entitlements. This means that your claims to benefits from occupational pensions remain intact under certain conditions, even if you change employers or terminate your employment. For contributions from salary conversion, immediate vesting applies. Statutory vesting secures at least part of your claims, even if you switch employers. Before considering a buy-back, check the status of your vesting. This is an important factor for your decision.
Conclusion: Repurchasing occupational pensions is usually a losing proposition – Advice is crucial
More useful links
Bundesministerium für Arbeit und Soziales (BMAS) provides comprehensive information on occupational pensions.
Gesetze im Internet offers the full text of the Occupational Pensions Act (BetrAVG), which forms the legal basis of the occupational pension scheme.
Deutsche Rentenversicherung provides an informative brochure on occupational pensions.
Publikationen der Bundesregierung presents an official publication on occupational pensions.
Deutscher Bundestag offers a PDF document with detailed information about occupational pensions.
aba (Arbeitsgemeinschaft für betriebliche Altersversorgung e.V.) provides up-to-date statistics on the spread of occupational pensions.
FAQ
What exactly is the surrender value in an occupational pension scheme?
The surrender value is the amount you would receive if you prematurely terminated your occupational pension scheme. It consists of the contributions paid plus accrued interest and profits, from which various costs (administration, conclusion, cancellation) and any additional tax payments are deducted.
Is it possible to receive the surrender value of my occupational pension scheme without losses?
No, generally a buyback without losses is not possible. Often, up to 70-80% of the paid contributions are lost. The legislator views the occupational pension scheme as a long-term retirement provision, which is why early termination is associated with financial disadvantages.
Under what circumstances can I terminate my occupational pension?
A termination is only possible in very limited exceptional cases, for example in the case of a so-called small entitlement (very low expected pension, e.g. less than €37.45 per month in 2025) or if your employer agrees to the termination.
What are the tax implications of repurchasing an occupational pension?
If your contributions were tax-free, the entire surrender value must be taxed. This means the original tax advantages are lost. Social security contributions may also become payable retrospectively.
Are there better alternatives than buying back the company pension scheme?
Yes, pausing premium payments is a common alternative. In this case, you stop making contributions, but your accrued capital remains intact and continues to earn interest. In the event of changing employers, it is often possible to transfer the policy to the new employer.
What should I do before making a decision about the repurchase?
Be sure to seek professional advice. An expert can analyze your individual situation, calculate the financial implications of a buyback, and help you find the best solution for your retirement planning. Carefully consider all alternatives.
