VWL Pension: How to Optimise Your Retirement Planning with Employee Savings Schemes
22 Apr 2025
8
Minutes
Katrin Straub
CEO at nextsure
Many employees leave tangible money unused that could enhance their pension provisions. Asset-building benefits (VWL) offer an attractive opportunity to save for the future with support from both your employer and the state. Discover how to optimise your VWL pension.
The topic in brief and concise terms
VWL is an employer subsidy of up to 40 euros per month, which can be used for retirement savings and is often government-supported.
Converting VWL into a company pension scheme can save on taxes and social contributions.
The employee savings allowance (e.g., 20 percent for equity funds) increases the return, be mindful of income limits.
VWL Pension: Understanding the Basics for Building Your Wealth
Capital-forming benefits are monetary contributions from your employer, which can amount to up to forty euros per month. These sums are directly invested in a savings plan chosen by you, intended for long-term wealth accumulation, particularly for your retirement provision. Many employees are entitled to this benefit, often stipulated in collective or employment contracts. The duration of a capital-forming contract typically spans seven years, with contributions made for six years and the funds resting in the seventh year. This structured form of saving helps you continuously accumulate capital for your capital-forming pension.
The government further supports wealth accumulation through capital-forming benefits with the employee savings bonus. This subsidy depends on your taxable income and the chosen form of investment. For individuals, the income threshold, for instance, is twenty thousand euros for fund savings plans. This makes your capital-forming pension even more appealing. You should examine the exact conditions for eligibility for capital-forming benefits.
Investment options for your VWL pension: Choices and their benefits
For setting up your capital-forming benefits, there are various options available, which offer different return opportunities and risk profiles. A popular option is to contribute to a company pension scheme (bAV). In this case, contributions can potentially be converted from gross salary tax-free and free of social contributions. This results in a noticeable net advantage during the savings phase.
Other common investment forms are:
Savings plans with banks: A secure, but often lower-yield option.
Home savings contracts: Sensible if you plan to acquire property in the future; here there is often nine percent employee savings allowance.
Fund savings plans (e.g., with ETFs): Offer higher return opportunities with corresponding higher risk; here up to twenty percent employee savings allowance is possible.
Repayment of a construction loan: Existing real estate loans can be repaid faster with capital-forming benefits.
Capital-forming life insurance: Combines saving with survivor protection, payout often as a lump sum or pension.
Choosing the right form of investment is crucial for the success of your capital-forming benefits pension and should take into account your personal situation and risk tolerance. A private pension insurance can also be an option.
State subsidies and taxes: How to maximise your VWL pension
Government support through employee savings allowance makes the VWL pension particularly attractive for low and average earners. The allowance for capital investments (e.g. equity funds) is twenty percent of the annual contributions, up to a maximum of eighty euros for singles with contributions up to four hundred euros. For building savings contracts, there is nine percent on a maximum of 470 euros annual contribution. Note the income limits: For the equity savings allowance, it is forty thousand euros taxable annual income for singles (eighty thousand euros for married couples) since the adjustment in 2024.
Contributions to asset-effective benefits are generally subject to taxes and social security contributions unless they are made under a company pension scheme through salary conversion. In the case of occupational pension schemes (bAV), the contributions are tax and social security-free up to certain maximum limits (e.g. 2025 up to 7,728 euros annually tax-free for contributions to a direct insurance). The later payout of the VWL pension from a bAV is then subject to downstream taxation, often at a lower tax rate in retirement age. Information on whether unit-linked pension insurances are tax deductible may be relevant here.
Practical examples and calculations: Making your economics pension tangible
Assuming you receive the maximum amount of forty euros per month as VWL from your employer. That amounts to 480 euros per year. If you invest this amount in an equity fund savings plan and are below the income threshold, you receive an additional eighty euros employee savings bonus (twenty percent of four hundred euros). Your annual savings increase to 560 euros without requiring any additional personal contribution.
Another example concerns the use of VWL for company pension schemes. If you pay the forty euros VWL into a direct insurance policy, these contributions can be exempt from social security contributions and taxes. Assuming a marginal tax rate of thirty percent and social contributions of around twenty percent, you save about twenty euros in taxes and contributions on a forty euros contribution. The net cost for forty euros additional pension provision is then only about twenty euros. This illustrates the leverage effect of the VWL pension. You can find more information about the 3 layers of pension provision.
Expert Depth: Legal Principles and Design Tips for Your Volkswagen Retirement
The legal basis for wealth-building benefits is the Fifth Wealth Formation Act (5. VermBG). This law governs entitlement, investment forms, and state subsidies. Employers are not always obliged to pay VWL; often, the entitlement arises from collective agreements, company agreements, or the employment contract. Our expert tip: Actively ask your HR department whether and to what extent there is an entitlement to VWL.
For the optimal structuring of your VWL pension, consider the following tips:
Check eligibility for subsidies: Verify whether you're entitled to the employee saving allowance and make use of it.
Choose investment form: Adapt the investment to your risk appetite and goals (e.g., bAV for tax advantages, equity funds for return opportunities).
Consider contract durations: VL contracts usually have a lock-in period of seven years; early termination may lead to loss of subsidies.
Evaluate topping up: If the employer pays less than forty Euros, topping up yourself might be advisable to receive full subsidies.
Regular review: Adjust your VL strategy as needed to fit changing life circumstances.
The question of whether a direct insurance is tax-deductible also plays a role. Think long-term to fully exploit the potential of your VWL pension.
VWL pension even in retirement? Opportunities and what to consider
In principle, the entitlement to capital-forming benefits from the employer ends upon retirement, as VL are treated like wages under labour law. However, the existing savings contract continues. Retirees then have several options: They can cancel the contract (potentially losing the subsidy if ended prematurely within the lock-in period), continue to pay contributions privately, or let the contract rest until its maturity. Our expert tip: Continuing contributions can be worthwhile to benefit from interest or value increases until the regular end of the contract.
Those who take on a side job during retirement may still receive VL from the new employer and even apply for the employee savings allowance, provided the income limits are not exceeded. The additional earnings limits for a standard old-age pension have largely been lifted, so this usually does not result in a reduction of the statutory pension. A whole life insurance or other forms of investment can also be relevant during retirement.
Conclusion: Your VWL pension as an important component for financial security in retirement
The VWL pension offers an excellent opportunity to build an additional financial cushion for retirement with relatively little personal effort and government support. Thanks to employer contributions, which can amount to up to 480 euros annually, along with the potential employee savings allowance, your assets grow faster. The various forms of investment, ranging from secure bank savings plans to yield-oriented equity funds or tax-advantaged occupational pensions, allow for individual adjustment to your needs. Take this opportunity actively to close your pension gap in retirement. Inform yourself through your employer about your entitlement and choose the investment strategy that suits you best. Careful planning today lays the foundation for a more relaxed financial future.
Request a personal risk analysis now: Have your insurance situation checked free of charge and receive specific optimization suggestions.
More useful links
Wikipedia provides a comprehensive overview of employer-sponsored savings schemes (VL) and their significance.
The Federal Ministry of Finance offers official information on the employee savings subsidy, including requirements and subsidy amounts.
The German Pension Insurance provides information on various aspects of retirement planning and pension benefits.
The Federal Statistical Office (Destatis) provides up-to-date data and statistics on demographic developments in Germany.
The Federal Ministry of Labour and Social Affairs (BMAS) delivers official information and policy frameworks relating to retirement planning.
FAQ
What are asset-building benefits (VWL)?
VWL are savings contributions that your employer pays in addition to your salary, up to 40 euros per month. They are used for asset accumulation and can be utilised for the VWL pension.
Who is eligible for VWL?
Employees, civil servants, judges, soldiers, and trainees are entitled to VL benefits, often specified in employment or collective agreements. Check with your employer.
What is the amount of government funding for VWL?
The employee savings allowance, for example, amounts to 20 percent on annual contributions of up to 400 euros in equity funds (maximum 80 euros for single individuals) or 9 percent for home loan savings contracts (maximum 42.30 euros), depending on income.
What types of investments are available for VWL for retirement planning?
Popular options include company pension schemes (e.g. direct insurance), fund savings plans (ETFs), home savings contracts, or special VL life insurance policies as components of the VWL pension.
Are VWL subject to tax?
Yes, VL benefits are generally subject to tax and social security contributions. However, an exception exists when they are converted into a company pension scheme, where contributions can be tax and social security-free up to certain limits.
What is the blocking period for VL contracts?
Most VL contracts have a lock-in period of seven years (six years of contributions, one year of rest period). Terminating the contract prematurely may result in the loss of government subsidies.
