Occupational pension surrender value: options, costs and smart alternatives for your company pension
18.05.25
9
Minutes
Katrin Straub
Managing Director at nextsure
Are you thinking about the surrender value of your workplace pension? Cancelling it is often associated with significant losses and is only rarely possible. Find out here what pitfalls await and which 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 in, as high costs and back tax payments are incurred.
Termination of the occupational pension scheme is only possible in exceptional cases, such as a small entitlement (under approx. €37 monthly pension) or with the employer’s consent.
Alternatives to cancellation, such as premium waiver or transferring the contract when changing jobs, are usually the better financial options.
Surrender value of occupational pension: What you need to know
The surrender value of an occupational pension scheme (bAV) refers to the sum that would be paid out in the event of an early contract termination. This value corresponds to the accumulated contributions including interest and gains, less all administration and acquisition costs, as well as any possible back payments of tax. Termination of a bAV is heavily restricted by law, as it runs counter to the retirement provision objective. In most cases, surrender is associated with significant financial losses. The importance of the bAV as long-term retirement provision becomes clear here. The decision to surrender should therefore never be made lightly.
High losses loom: The reality of the surrender value
The payout of the full contract value is an illusion when cashing in a bAV. Often, the surrender value amounts to only twenty to thirty per cent of the contributions paid in. This means a potential loss of seventy to eighty per cent of your retirement savings. In addition, cancelling the contract means that no further additional retirement provision is built up. The taxes and social security contributions saved during the accumulation phase become due immediately if the contract is cancelled. It can even happen that these additional payments, together with administrative costs, exceed the amount saved. Careful consideration of whether a bAV is worthwhile is therefore essential. is worthwhile
Termination of the bAV: Only possible in exceptional cases
Ordinary termination of occupational pension provision by the employee is generally excluded. The legislator wants to ensure that the capital saved is actually used for retirement provision. However, there are a few exceptional situations in which cancellation is conceivable:
Small entitlement: If the expected monthly pension is below a certain de minimis threshold (e.g. EUR 37.45 in 2025), the contract can be terminated without the employer's consent.
Employer's consent: If the employment relationship still exists, the employer can agree to the termination, but is not obliged to do so.
Termination of the employment relationship: Under certain circumstances, after leaving the company, a severance payment can be negotiated that is based on the surrender value.
Even if termination is possible, the financial disadvantage often outweighs the short-term benefit. The option of taking the bAV with you should always be checked.
Tax pitfalls of the surrender value
The tax treatment of the surrender value of an occupational pension scheme is complex and often disadvantageous. If contributions to the bAV were tax-exempt (under section 3 no. 63 of the German Income Tax Act), the entire surrender value is fully taxable. This means that the tax advantages gained during the accumulation phase are nullified. In the case of contributions taxed at a flat rate (under section 40b of the German Income Tax Act, former version), in general only the income portion is taxed. Subsequent taxation can significantly reduce the amount paid out. It is advisable to seek individual advice on this in order to understand the exact effects on the tax burden of the bAV. An ill-considered cancellation can lead to an unexpectedly high tax bill.
Practical alternatives to cancelling your company pension scheme
Given the significant disadvantages of cancelling, you should always consider alternatives. A commonly used option is to make the contract paid-up. In this case, you no longer pay contributions, but the capital already accumulated is retained and continues to accrue interest until retirement. Usually, only low administration fees apply. Another option in the event of a change of employer is the transfer of the contract balance to the new employer, provided certain conditions are met (e.g. accumulated capital below EUR 96,600 in 2025, job change no more than a year ago). You should consider the following points:
Check whether paid-up status is possible.
Explore the option of transferring the contract to your new employer.
Have the vesting of your entitlements checked.
Find out about the exact terms and conditions with your provider.
Paid-up status is often the financially smartest decision to avoid losses. These alternatives protect the capital you have saved so far for retirement.
Expert tips: How to deal with the issue of surrender value
Dealing with the surrender value of occupational pension provision requires foresight. Our expert tip: do not act rashly. Termination should always be the last option, after all alternatives have been carefully reviewed. Be sure to seek professional advice to assess the individual consequences of termination or the benefits of alternative solutions for your company pension scheme. Document all steps and agreements carefully. A well-informed decision protects your assets for retirement. Remember that statutory regulations, such as the Company Pensions Act (BetrAVG), set the framework and are intended to protect pension entitlements.
The Occupational Pensions Act (BetrAVG) forms the legal basis for occupational retirement provision in Germany. Among other things, it governs the vesting of entitlements. This means that your claims to the benefits from occupational pension provision also remain in place under certain conditions if you change employer or your employment ends. For contributions made through salary sacrifice, immediate vesting applies. The statutory vesting rule secures at least part of your entitlements, even if you change employer. Before considering a buy-back, check the status of your vesting. This is an important factor in your decision.
Conclusion: Buying back occupational pension rights is usually a losing proposition – advice is crucial
The surrender value of an occupational pension scheme is rarely an attractive option. The financial losses caused by fees, costs and additional tax payments can be immense and amount to up to eighty per cent of contributions paid in. Cancellation is also only possible in very limited exceptional cases. Alternatives such as premium exemption or the transfer of the contract are generally the better ways to secure your saved capital for retirement. A thorough analysis of your situation and professional advice are essential before you make a decision about the future of your occupational pension scheme. Bear in mind that older contracts often have good terms that are worth preserving.
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More useful links
Federal Ministry of Labour and Social Affairs (BMAS) provides comprehensive information on occupational pension provision.
Laws on the Internet provides the full text of the Occupational Pensions Act (BetrAVG), which forms the legal basis for occupational pension provision.
German Pension Insurance offers an informative brochure on occupational pension provision.
Publications of the Federal Government provides an official publication on occupational pension provision.
German Bundestag offers a PDF document with detailed information on occupational pension provision.
aba (Working Group for Occupational Pensions e.V.) provides current statistics on the prevalence of occupational pension provision.
FAQ
What exactly is the surrender value in a company pension scheme?
The surrender value is the amount you would receive if you were to terminate your occupational pension scheme early. It is made up of the contributions paid in plus the interest and profits earned, from which various costs (administration, initiation, cancellation) and any additional tax payments that may arise are deducted.
Is it possible to receive the cash surrender value of my occupational pension scheme without losses?
No, as a rule, a buyback without losses is not possible. Often, up to 70–80% of the contributions paid in are lost. The legislature views occupational pension provision (bAV) as long-term retirement provision, which is why early termination is associated with financial disadvantages.
Under what circumstances can I cancel my occupational pension scheme?
Termination is only possible in very limited exceptional cases, for example in the case of a so-called small entitlement (a very low expected pension, e.g. under EUR 37.45 per month in 2025) or if your employer agrees to the termination.
What tax consequences does the buyback of a company pension scheme (bAV) have?
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 due retrospectively.
Are there better alternatives to buying back occupational pension provision?
Yes, premium exemption is a common alternative. This stops your contributions, but your accumulated capital remains intact and continues to accrue interest. When changing employer, the contract can often also be transferred to the new employer.
What should I do before making a decision about the repurchase?
Be sure to seek professional advice. An expert can analyse your individual situation, calculate the financial impact of a buyback, and help you find the best solution for your retirement planning. Carefully consider all alternatives.
