New employer does not take over direct insurance: Your options and rights clearly explained
24.04.25
4
Minutes
Katrin Straub
Managing Director at nextsure
A new job brings many changes, but what happens to your direct insurance policy if your new employer does not continue it? Many employees face this question and worry about their accumulated retirement provision arrangements. This article looks at your four most important options and how you can secure your entitlements.
The topic in brief and concise terms
A new employer is not obliged to take over your existing direct insurance policy; however, there are at least four options (private continuation, transfer of capital, premium-free status, cancellation).
If continued privately as the policyholder, no health or long-term care insurance contributions will later be due on the privately financed portion.
The transfer of capital is often possible, but may result in the loss of existing guarantees and usually has to be applied for within one year.
Quick Facts: Direct insurance when changing employer – the essentials in brief
Changing jobs often raises questions about an existing direct insurance policy. Not every new employer is obliged to take over an existing policy, which can initially create uncertainty for employees. However, there are at least four clear options for how you can deal with your direct insurance policy if the new employer does not take it over. Your accrued entitlements are generally protected, thanks to the statutory regulations on vesting of occupational pension provision. The decision in favour of one of the options should be carefully considered and depends on your individual situation as well as the contract details. Early clarification with the new employer and the insurer is crucial, often within a period of twelve months after changing jobs. This section gives you a quick overview of your options.
Issue overview: Why does the new employer often not take over the direct insurance?
Many employees are surprised when the new employer refuses to take over the existing direct insurance policy. There are usually understandable reasons for this from the company's perspective. A key reason is liability; the new employer would have to stand behind the old employer's pension commitment, which carries risks if the insurer does not deliver the guaranteed benefits. New employers often already have their own, standardised benefit schemes in place for their workforce. Integrating a single, different contract would increase the administrative burden by at least ten per cent. In addition, legacy contracts may contain terms (e.g. high guaranteed interest rates) that the new employer cannot replicate, or can only do so with considerable extra effort. The employer contribution of fifteen per cent to salary sacrifice arrangements, which has been mandatory since 2022, can also lead to complications with legacy contracts if the insurer does not provide for this. These factors mean that a refusal to take over the policy is not uncommon, even if your wish to transfer the bAV remains.
Your options in detail: Four ways for your direct insurance
If your new employer does not take over your direct insurance policy, there are generally four viable options available to secure your retirement provision entitlements. Each option has specific advantages and disadvantages that should be weighed up. A careful review of your policy terms and personal financial goals is essential. The choice affects not only the amount of your later pension, but also tax aspects and social security contributions. Here are the four main alternatives:
Private continuation of the contract: You take over the contract as the policyholder and continue paying the contributions from your net income. This can make sense in order to preserve existing guarantees.
Transfer of the capital (portability): The accumulated capital is transferred to a new policy with the new employer or their pension scheme. This is often possible within a year of changing jobs.
Paid-up policy: You stop paying contributions. The policy remains in force and the capital accumulated to date continues to earn interest until retirement age.
Cancellation and payout (rare and usually disadvantageous): A cancellation of the direct insurance policy is only possible in exceptional cases and is often associated with financial disadvantages, as taxes and social security contributions have to be paid retroactively.
The decision in favour of one of these options should not be made hastily. It is advisable to examine the consequences of each alternative carefully.
Option 1: Private continuation – the saver takes matters into their own hands
The private continuation of your direct insurance policy is a common option if the new employer does not take over the contract. You become the policyholder yourself and pay the premiums from your net income, which has already been taxed. A major advantage: no health insurance or long-term care insurance contributions are later due for the privately accumulated portion if you are listed as the policyholder. This was confirmed by a ruling of the Federal Constitutional Court (1 BvR 1660/08). As a rule, the application for private continuation should be submitted within fifteen months of leaving your previous employer. Please note that the tax advantages of salary sacrifice no longer apply to future contributions in this arrangement. Existing guarantees and contract conditions, such as a potentially high guaranteed interest rate of, for example, two per cent from an older contract, are however retained. Consider whether continuing the payments without tax relief is worthwhile for you, especially compared with alternative retirement provision options. The tax treatment of the direct insurance policy changes fundamentally here.
Option 2: Transfer of capital – fresh start with the new employer
Transferring the accumulated capital (covering capital) to a new contract with your new employer is another option if they do not want to continue your old direct insurance policy. This is also referred to as portability. Under certain conditions, the employee has a legal right to transfer if the commitment was made after 31 December 2004 and the transfer value does not exceed the contribution assessment ceiling (2023: 87,600 euros West). The application must usually be submitted within one year of changing jobs. The new employer then takes out a new contract, often as part of their own pension scheme, and the capital from your old contract is paid into it. Warning: This can have disadvantages. The original actuarial assumptions, such as a high guaranteed interest rate, are lost. [1] The terms of the new contract apply, which may be less favourable. In addition, transfer fees may apply, which can reduce your return by up to one per cent. Check carefully whether the terms of the new contract are attractive.
Option 3: Premium suspension – Let the contract rest
If neither private continuation nor a capital transfer is an option for you because the new employer does not take over the direct insurance policy, you can have the contract made paid-up. This means you no longer pay any further contributions. However, your entitlements accrued to date and the capital saved remain in place and continue to earn interest until the agreed pension start date. This is often the simplest solution, with the lowest administrative effort of only about one hour. The disadvantage is that the originally planned pension amount is not reached, as no further payments are made. If contributions are made paid-up at an early stage, it can also happen that the existing cover capital is lower than the sum of the contributions paid, as acquisition and distribution costs, which are often spread over the first five years, have not yet been fully amortised. This option at least secures what has been achieved so far and is worth considering if the other options do not fit or if you are uncertain about your professional future with the new employer. The question "What happens to the occupational pension scheme when employment is terminated?" is closely related here.
The Occupational Pensions Act (BetrAVG) regulates the rights and obligations relating to occupational retirement provision. If the new employer does not take over the direct insurance policy, Section 4 of the BetrAVG is particularly relevant. This section deals with the transfer and continuation of vested entitlements. [2] As a general rule, the new employer is under no obligation to take over an existing contract on a one-to-one basis. [1] However, it may be required to offer an equivalent-value commitment within its own pension scheme if the employee requests this within one year and the conditions for portability (contract concluded after 2004, transfer value below the contribution assessment ceiling) are met. [3] An important point is the vesting of entitlements: entitlements financed through salary sacrifice are immediately vested by law. [5] This means that your previous contributions and the returns earned on them are not lost. Our expert tip: when continuing the policy privately, make sure that you are entered as the policyholder in order to avoid the obligation to pay contributions to statutory health and long-term care insurance on the privately financed portion. [4] This is a detail that is often overlooked and can amount to several hundred euros per year in retirement. Avoiding health insurance contributions is an important aspect here.
Tax and social security consequences of the various options
The decision on what to do with your direct insurance policy if the new employer does not take it over has significant tax and social security implications. If you continue it privately, you pay contributions from your net income; these are no longer tax- and social security contribution-advantaged during the accumulation phase. In return, the privately financed part of the later pension is exempt from social security contributions. [2] If the policy is transferred as capital to a new contract, the contributions made under salary sacrifice remain tax-free up to eight per cent of the contribution assessment ceiling and exempt from social security contributions up to four per cent. [3] At retirement age, benefits from the direct insurance policy are subject to deferred taxation at the then applicable personal tax rate. [1] In addition, those covered by statutory health insurance must pay contributions to health and long-term care insurance, although there is an allowance (2024: EUR 176.75 per month, from 2025: EUR 187.25). [3] Termination with payout is usually the least favourable option, as high back payments of tax and social security contributions are often due here. [3] The importance of occupational pension provision is also evident in these complex regulations.
Conclusion and recommendation: proactively shape your retirement provision
If your new employer does not take over your direct insurance policy, there is no need to panic; rather, it is an opportunity to act. You have several options, from continuing the policy privately to transferring the capital or making it paid-up. Each of these alternatives has specific financial and legal consequences. There is no one-size-fits-all best solution; it depends on your individual situation, your contract and your future plans. Find out early, ideally before changing jobs, about the new employer’s position on taking over existing contracts. Make use of the deadlines granted to you by law, for example the twelve-month period for applying for a transfer of capital. Careful consideration and, where necessary, professional advice are crucial to avoid financial disadvantages and continue building your retirement provision in the best possible way. Remember that a well-planned occupational pension scheme is an important building block for your financial security in retirement. Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Your retirement provision offers comprehensive information on occupational pension schemes and the effects of changing jobs.
Paychex provides useful information on direct insurance when employment ends.
Haufe provides information on occupational pension schemes, their termination and changing employers, including the legal right to transfer.
The Arbeitsgemeinschaft für betriebliche Altersversorgung (aba) offers a detailed glossary entry on the term 'transfer' in the context of occupational pension provision.
Gesetze im Internet provides the full text of Section 4 of the German Occupational Pensions Act (BetrAVG), which governs the transfer of vested pension rights.
The Gesamtverband der Deutschen Versicherungswirtschaft (GDV) explains how occupational pension provision can be continued after changing employers.
The Pensions-Sicherungs-Verein (PSVaG) answers frequently asked questions about occupational pension provision and its protection.
The Federal Ministry of Finance offers an official glossary entry on retirement provision.
FAQ
Does my new employer have to take over my old direct insurance policy?
No, there is no general obligation for the new employer to take over your old direct insurance policy. They may do so, but are not obliged to. Liability risks or administrative effort are often cited as reasons for refusing.
What are the advantages of continuing my direct insurance privately?
The main advantage is that no health insurance or long-term care insurance contributions are due on the privately financed portion of the later pension, provided you are listed as the policyholder. In addition, old contract conditions such as guaranteed interest rates remain in place.
What does 'premium exemption' for my direct insurance mean?
Paid-up status means that you no longer pay any further contributions into the contract. However, the capital accumulated to date remains in place, continues to earn interest and will be paid out to you at retirement age. However, the originally planned pension amount will not be reached as a result.
Is it sensible to cancel a direct insurance policy when changing jobs?
Cancellation is rarely sensible and is often associated with significant financial disadvantages. As a rule, saved taxes and social security contributions must be paid back, and the surrender value can be lower than the contributions paid in.
What is the difference between taking over and transferring the direct insurance?
In an acquisition, the new employer steps into the existing contract with all rights and obligations. In a transfer (portability), the capital saved in the old contract is moved into a new contract with the new employer or its pension scheme, usually on new terms.
What role does Section 4 of the BetrAVG play if the new employer does not take over the direct insurance policy?
Section 4 of the German Company Pensions Act (BetrAVG) regulates the options for continuing and transferring pension entitlements when changing employer. It provides the legal basis for options such as capital transfer and sets out certain requirements and deadlines.
