Claim tax relief on your workplace pension: your route to a better retirement in 2025
10.06.25
4
Minutes
Katrin Straub
Managing Director at nextsure
Did you know that you can reduce your tax burden with contributions to an occupational pension scheme (bAV)? Many employees are not yet making the most of this opportunity. Find out here how to claim tax relief on occupational pensions and secure more net pay from your gross salary for your future.
The topic in brief and concise terms
Contributions to bAV are tax-free up to €7,728 per year in 2025 and exempt from social security contributions up to €3,864.
Salary sacrifice reduces gross salary and therefore the immediate tax and social security contribution burden.
In the payout phase, taxation is deferred, but often at a lower personal tax rate.
Maximise the tax advantages of occupational pension provision during the accumulation phase
Occupational pension provision (bAV) enables employees to save part of their gross salary for retirement on a tax- and social security-contribution-advantaged basis. In 2025, contributions of up to EUR 7,728 per year can be paid tax-free into certain bAV contracts such as direct insurance policies, pension funds or pension schemes. This corresponds to eight per cent of the contribution assessment ceiling of the statutory pension insurance scheme (West). Of this amount, up to EUR 3,864 (four per cent of the contribution assessment ceiling) is also exempt from social security contributions. This rule reduces your taxable income and therefore your immediate tax burden. Many employees significantly underestimate the annual savings potential offered by these allowances. The exact amount you save depends on your personal income and tax class. A sensible bAV arrangement takes these factors into account. This tax incentive makes bAV an attractive tool for increasing your own retirement provision.
Salary sacrifice: This is how the tax-saving model works
The core of the tax advantages in occupational pension provision is salary conversion. [1,2] In this process, part of your gross salary is paid directly into your occupational pension contract. [1] This amount reduces your income liable to tax and social insurance contributions. [2] Suppose you convert 200 euros per month: these 200 euros are not subject to your usual tax rate or social security contributions, resulting in a direct net saving. [3] The actual net cost for your retirement provision is therefore lower than the amount paid in. Since 2019, employers have also been required to pay a contribution of at least fifteen per cent for new contracts, provided they save social security contributions through salary conversion. [4,5] This further increases the effectiveness of your contributions. The direct insurance is a frequently chosen implementation route for salary conversion. The exact impact on your net pay can be calculated individually.
Understanding the implementation channels for occupational pension provision and their tax treatment
There are five different routes for occupational pension provision, which can be treated slightly differently for tax purposes: direct insurance, pension fund, pension fund, support fund and direct commitment. [5,6] For the first three (direct insurance, pension fund, pension fund), the tax allowances already mentioned apply, of up to eight per cent of the contribution assessment ceiling (2025: EUR 7,728) and exemption from social security contributions up to four per cent (2025: EUR 3,864). [5,4] For direct commitments and support funds, contributions in the savings phase can even be tax-free without limit. [1,4] However, in the case of salary conversion, contributions here are also exempt from social security contributions only up to the four per cent limit. [1] The choice of implementation route depends on various factors and should be carefully considered. Find out whether occupational pension provision makes sense for you. The complexity of the different models underlines the importance of good advice.
Payout phase: use deferred taxation and tax allowances
The taxes and social security contributions saved during the accumulation phase become due in the payout phase – this is known as deferred taxation. [1,4] Your workplace pension is then taxed as additional income at your personal tax rate. [2] As the tax rate in retirement is often lower than during working life, this can still result in an advantage. [4] In addition, health and long-term care insurance contributions are payable on the workplace pension. [1] For retirees insured under the statutory health insurance scheme, there has been an allowance for health insurance contributions since 2020, which in 2025 amounts to EUR 187.25 per month. [6,2] Health insurance contributions are only payable on the portion of the workplace pension that exceeds this allowance. However, this allowance does not apply to long-term care insurance. In the case of lump-sum payments, the one-fifth rule may, in certain circumstances, be used to reduce the tax burden. [4] It is important to be familiar with the rules on the taxation of retirement provision in detail. Careful planning of the payout phase is therefore crucial.
Here are some aspects you should consider when taking benefits:
Personal tax rate in retirement.
Applicable health and long-term care insurance contributions.
Use of the allowance for health insurance contributions (2025: EUR 187.25). [6]
Option of a lump-sum payment versus a lifelong pension.
Check whether the one-fifth rule can be applied to lump-sum payments. [4]
Possible effects on other sources of income and social benefits.
These points will help you better assess the financial impact of your occupational pension scheme in later life.
Special cases and expert tips for your bAV tax optimisation
In addition to the general rules, there are a few special situations and design options. Contracts concluded before 1 January 2005 (so-called older contracts) may, in certain circumstances, be taxed at a flat rate of twenty per cent, and the subsequent pension is then taxed only on the income component. [6] When changing employer, the accumulated capital can usually be transferred to the new provider in a tax-neutral manner, provided certain requirements are met. [1] Our expert tip: When changing jobs, check the transfer arrangements and the terms of the new bAV contract carefully. For low earners with a monthly gross income of up to 2,575 euros (as of 2025), there is a government subsidy if the employer makes additional contributions to the bAV on top of the wage. [2] This amounts to thirty per cent of the employer's contribution, but no more than 288 euros per year. [2] A comprehensive assessment of your insurance situation may reveal further opportunities for optimisation. The details can be complex, so individual advice is worthwhile.
Keep an eye on the legal basis and current rulings
The legal basis for occupational pensions is the Occupational Pensions Act (BetrAVG). [3] This Act regulates, among other things, the right to salary conversion (§ 1a BetrAVG) and the vesting of entitlements. [2,4] The tax aspects are anchored primarily in the Income Tax Act (EStG), in particular § 3 No. 63 EStG for the tax exemption of contributions. [5,2] Legislation and case law on occupational pensions are constantly evolving. For example, in 2024 there was a BFH ruling on the tax treatment of the reversal of a pension equalisation. [3] Contribution assessment ceilings and allowances are also adjusted regularly; for 2025, for example, harmonisation of the ceilings in East and West Germany is planned. [1] Our expert tip: Keep yourself regularly informed about current changes so that you can optimise your occupational pension scheme and make full use of all benefits. Understanding the three pillars of retirement provision helps to correctly classify occupational pensions. Keep up to date so you don’t miss any important developments.
Many employees have specific questions when it comes to occupational pension provision and taxes. A common question concerns whether bAV needs to be declared in the tax return. In the accumulation phase, this is usually not necessary for employees, as the contributions are deducted directly from gross pay and the employer transmits the data electronically. [6,5] Only in the payout phase must the benefits be taxed as income and declared accordingly in the tax return (e.g. Annex R-AV/bAV or Annex N). [5] Another question concerns transferring bAV when changing employer. In principle, taking the bAV contract with you is possible, but the exact arrangements depend on the former and new employer as well as the implementation route. What is important is that the transfer can be carried out tax-neutrally if certain requirements are met. [1] Clarifying such questions in advance creates certainty. For individual situations, professional advice is often essential.
Here is a list of typical questions about bAV and taxes:
Do I have to declare my bAV contributions in my tax return? (Answer: Usually not during the accumulation phase) [5]
How are bAV benefits taxed in retirement? (Answer: Deferred taxation at the individual tax rate) [1]
What allowances apply on payout? (Answer: e.g. EUR 187.25/month for health insurance contributions in 2025) [6]
What happens to my bAV when I change jobs? (Answer: Transfer often possible) [1]
Is bAV worthwhile even on a low income? (Answer: Yes, possibly with state support) [2]
Can I also take out a bAV as a mini-job employee? (Answer: Yes, entitlement exists) [5]
These answers provide an initial guide for your planning.
Your next steps to make the most of your occupational pension scheme
Company pension scheme offers an excellent way to save for retirement while also benefiting from tax advantages. Through salary sacrifice, you can save up to 7,728 euros per year tax-free (as of 2025), thereby reducing your tax burden. The various implementation options and the rules on deferred taxation require a careful review of your individual situation. Take advantage of state support and the potential employer contribution to structure your retirement provision effectively. Careful planning, especially with regard to the payout phase and any possible job changes, is essential. If you are unsure how to make the best use of company pension scheme for yourself, we will be happy to help. We can help you understand the complex rules 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
Federal Ministry of Finance offers a detailed document that could relate to income tax regulations and appendices.
Federal Ministry of Finance provides a brochure explaining the taxation of retirement income.
German Pension Insurance offers a brochure on occupational pension provision.
German Pension Insurance provides a glossary entry explaining occupational pension provision for employers and tax advisers.
Federal Ministry of Labour and Social Affairs provides information on the Act to Strengthen Occupational Pensions (Occupational Pensions Strengthening Act).
Laws on the Internet offers the Occupational Pensions Act on the official German legislation website.
Federal Statistical Office (Destatis) publishes a press release that probably contains statistics on pensions or retirement provision.
FAQ
Where do I enter occupational pension contributions in my tax return?
During the accumulation phase, as an employee you generally do not need to enter occupational pension scheme (bAV) contributions in your tax return, as these are already taken into account by your employer in payroll accounting. [5] During the payout phase, you must declare benefits as income in Anlage R-AV/bAV (for pensions from retirement provision contracts/occupational pension schemes) or Anlage N (for pension payments such as direct commitments). [5]
Which tax allowances apply to the occupational pension payout in 2025?
For pensioners with statutory health insurance, there will be a monthly allowance of EUR 187.25 in 2025 for health insurance contributions on occupational pensions. [6,2] For taxation of the pension itself, the general basic tax-free allowance applies (2025: EUR 12,096), which applies to all income. [4]
What happens to my occupational pension scheme if I change employers?
When you change employer, you can usually take your company pension scheme with you. Either the existing contract is continued with the new employer (if they agree and the implementation route allows it), transferred to the new provider (portability) or made paid-up. The transfer of the capital may, under certain conditions, be carried out without tax implications. [1]
Are contributions to the support fund tax-free without limit?
Yes, contributions to provident funds (and direct pension commitments) are tax-free for the employee in unlimited amounts during the accumulation phase. [1,4] However, if the financing is via salary conversion, the contributions are exempt from social security contributions only up to four per cent of the contribution assessment ceiling. [1]
Does the employer always have to contribute to salary sacrifice?
Since 2019, employers have had to pay a subsidy of a flat 15 per cent of the converted remuneration for new contracts (and since 2022 for many existing contracts), provided they save social security contributions through salary conversion. Collective agreements may contain differing provisions. [4,5]
Can I have my occupational pension paid out early?
An early payout of capital from an occupational pension scheme before retirement is generally not possible or is associated with significant disadvantages. The occupational pension scheme is earmarked for retirement provision. [2]
