Investment & Wealth
Occupational pension scheme
tax-deductible company pension scheme
Claiming Tax Relief on Occupational Pension Schemes: Your Path to an Optimised Retirement in 2025
Did you know that you can reduce your tax burden with contributions to the company pension scheme (bAV)? Many employees are not yet taking full advantage of this opportunity. Find out here how you can deduct the company pension scheme for tax purposes and thus secure more net income from your gross for the future.
The topic in brief and concise terms
Contributions to occupational pension schemes will be tax-free up to 7,728 euros annually and free from social security contributions up to 3,864 euros in 2025.
Salary conversion reduces the gross salary and thus the immediate tax and levy burden.
During the payout phase, there is a deferred taxation, often at a lower personal tax rate.
Maximising tax benefits of occupational pension schemes during the saving phase
Occupational pension schemes (bAV) enable employees to save parts of their gross salary for retirement with tax and social security benefits. In 2025, contributions of up to EUR 7,728 per year can be paid tax-free into certain bAV contracts such as direct insurance, pension funds, or pension schemes. This corresponds to eight percent of the contribution assessment ceiling of the general pension insurance (West). Up to EUR 3,864 (four percent of the contribution assessment ceiling) of this is additionally exempt from social security contributions. This regulation reduces your taxable income and thus your immediate tax burden. Many employees significantly underestimate the annual saving potential due to these allowances. The exact amount of savings depends on your personal income and tax class. A sensible bAV strategy takes these factors into account. This tax incentive makes the bAV an attractive instrument to boost your own retirement provision.
Salary conversion: How the tax-saving model works
The core of the tax benefits in occupational pension schemes is salary conversion. [1,2] In this case, part of your gross salary is paid directly into your occupational pension contract. [1] This amount reduces your income subject to tax and social security contributions. [2] Suppose you convert 200 euros per month: these 200 euros are not subject to your usual tax rate and social contributions, resulting in a direct net saving. [3] The actual net cost of your retirement provision is therefore less than the amount paid in. Since 2019, employers are also obliged to provide a subsidy of at least fifteen percent for new contracts, provided they save on social security contributions through salary conversion. [4,5] This further enhances the effectiveness of your contributions. The direct insurance is a common method for salary conversion. The exact impact on your net salary can be calculated individually.
Understanding the implementation methods of occupational pensions and their tax treatment
There are five different routes for company pension schemes, which can be treated slightly differently for tax purposes: Direct insurance, pension funds, pension schemes, support funds and direct promises. [5,6] For the first three (direct insurance, pension funds, pension schemes), the previously mentioned tax allowance of up to eight percent of the contribution assessment ceiling (2025: 7,728 euros) and exemption from social security contributions up to four percent (2025: 3,864 euros) apply. [5,4] For direct promises and support funds, contributions can even be tax-free without limit during the saving phase. [1,4] However, in the case of salary conversion, contributions are only exempt from social security up to the four percent limit. [1] The choice of implementation route depends on various factors and should be carefully considered. Find out whether a company pension scheme makes sense for you. The complexity of the different models highlights the importance of good advice.
Payout Phase: Utilising Deferred Taxation and Allowances
The taxes and social contributions saved during the accumulation phase become due during the payout phase – this is known as deferred taxation. [1,4] Your occupational pension is then taxed as additional income at your personal tax rate. [2] Since the tax rate in retirement is often lower than during working life, this can still result in an advantage. [4] Additionally, contributions to health and long-term care insurance are due on the occupational pension. [1] For retirees with statutory health insurance, there has been an allowance for health insurance contributions since 2020, which will be 187.25 euros per month in 2025. [6,2] Health insurance contributions must only be paid on parts of the occupational pension that exceed this allowance. However, this allowance does not apply to long-term care insurance. Under certain circumstances, the one-fifth rule can be used for tax relief in the case of capital payouts. [4] It is important to thoroughly understand the rules for taxing retirement provisions. Therefore, careful planning of the payout phase is crucial.
Here are some aspects you should consider during the payout:
Personal tax rate in retirement.
Applicable health and long-term care insurance contributions.
Utilisation of the allowance for health insurance contributions (2025: 187.25 euros). [6]
Option for a capital payout versus a lifelong pension.
Check the application of the one-fifth rule for capital payouts. [4]
Potential impact on other income and social benefits.
These points will help you better assess the financial impact of your occupational pension in old age.
Keep an eye on legal foundations and recent rulings
The legal basis for company pension schemes is provided by the Betriebsrentengesetz (BetrAVG). [3] This law regulates, among other things, the entitlement to salary conversion (§ 1a BetrAVG) and the vesting of pension rights. [2,4] The tax aspects are primarily anchored in the Income Tax Act (EStG), particularly § 3 No. 63 EStG regarding tax exemption of contributions. [5,2] Legislation and case law relating to occupational pensions continue to evolve. For example, in 2024 there was a BFH ruling on the tax treatment of the reversal of a pension equalization. [3] Contribution assessment ceilings and allowances are also regularly adjusted, and for 2025 an alignment of limits in East and West Germany is planned. [1] Our expert tip: Stay informed about current changes to optimize your occupational pension scheme and make full use of all benefits. Understanding the three tiers of retirement provision helps correctly categorize occupational pensions. Stay engaged to ensure you don't miss any important developments.
Common Questions about the Tax Deductibility of Occupational Pensions
Many employees have specific questions when it comes to company pension schemes and taxes. A common question concerns the necessity of indicating the company pension scheme in the tax declaration. During the savings phase, this is usually not required for employees, as the contributions are deducted directly from the gross salary and the employer submits the data electronically. [6,5] Only during the payout phase must the benefits be taxed as income and declared accordingly in the tax declaration (e.g., form R-AV/bAV or form N). [5] Another question revolves around transferring the company pension scheme when changing employers. Basically, transferring the company pension contract is possible, but the exact terms depend on both the old and new employer as well as the implementation method. It is important that the transfer can be carried out tax-neutral if certain conditions are met. [1] Clarifying such questions in advance provides security. For individual situations, professional advice is often essential.
Here is a list of typical questions regarding company pension schemes and taxes:
Do I have to declare my company pension scheme contributions in the tax return? (Answer: Usually no during the savings phase) [5]
How are company pension scheme benefits taxed in retirement? (Answer: Deferred taxation with individual tax rate) [1]
What tax exemptions are there for payouts? (Answer: For example, 187.25 euros/month for health insurance contributions in 2025) [6]
What happens to my company pension scheme if I change jobs? (Answer: Transfer is often possible) [1]
Is a company pension scheme worthwhile even with low income? (Answer: Yes, possibly with government support) [2]
Can I also take out a company pension scheme as a mini-jobber? (Answer: Yes, entitlement exists) [5]
These answers provide initial orientation points for your planning.
Your next steps to optimal use of occupational pension schemes
Company pension schemes offer an excellent way to plan for retirement while simultaneously taking advantage of tax benefits. With salary conversion, you can save up to €7,728 tax-free annually (as of 2025) and thus reduce your tax burden. The various implementation methods and the regulations on deferred taxation require a close examination of your individual situation. Leverage the government incentives and potential employer contributions to effectively shape your retirement planning. Careful planning, especially with regard to the payout phase and potential job changes, is crucial. If you are unsure how to make the most of the company pension scheme for yourself, we are happy to assist you. We help you understand the complex regulations and find a tailored solution for your financial future. Remember that a well-structured company pension scheme is an important pillar of your financial security in retirement. Do not hesitate to seek professional support.
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More useful links
Bundesfinanzministerium offers a detailed document that might relate to income tax regulations and appendices.
Bundesfinanzministerium provides a brochure explaining the taxation of retirement income.
Deutsche Rentenversicherung offers a brochure on occupational pension schemes.
Deutsche Rentenversicherung provides a glossary entry explaining occupational pension schemes for employers and tax advisors.
Bundesministerium für Arbeit und Soziales provides information on the Act to Strengthen Occupational Pensions (Betriebsrentenstärkungsgesetz).
Gesetze im Internet offers the Occupational Pensions Act on the official German legislation website.
Statistisches Bundesamt (Destatis) publishes a press release likely containing statistics on pensions or retirement provisions.
FAQ
Where do I enter the occupational pension scheme in the tax return?
During the accumulation phase, as an employee, you generally do not need to enter contributions to the occupational pension scheme (bAV) in the tax return, as these are already considered by the employer in the payroll. [5] In the payout phase, you need to declare benefits as income in Annex R-AV/bAV (for pensions from retirement savings contracts/occupational pensions) or Annex N (for pension benefits like direct commitments). [5]
What tax allowances apply for the bAV payout in 2025?
For pensioners with statutory health insurance, a monthly allowance of 187.25 euros for contributions to health insurance on occupational pensions applies in 2025. [6,2] For the taxation of the pension itself, there is the general basic allowance (2025: 12,096 euros), which applies to all income. [4]
What happens to my bAV if I change employers?
When changing employers, you can usually take your bAV with you. Either the existing contract is continued with the new employer (if they agree and the implementation option allows), transferred to the new provider (portability), or set to non-contributory status. The transfer of capital can be tax-neutral under certain conditions. [1]
Are contributions to the support fund unlimitedly tax-free?
Yes, contributions to support funds (and direct commitments) are tax-free for the employee in unlimited amounts during the accumulation phase. [1,4] However, if financing is through salary conversion, contributions are only free from social security up to four percent of the contribution assessment ceiling. [1]
Must the employer always pay a subsidy for salary conversion?
Since 2019, employers have been required to pay a flat-rate subsidy of fifteen percent of the converted salary for new contracts (and since 2022 for many old contracts), provided they save social security contributions through salary conversion. Collective agreements may contain different provisions. [4,5]
Can I have my bAV paid out early?
An early payout of capital from a bAV before retirement usually isn't possible or is associated with significant disadvantages. The bAV is intended for retirement provision. [2]
