Company pension scheme
The company pension scheme (bAV - betriebliche Altersvorsorge) is one of the most important ways for employees to supplement their statutory pension. Either the employer pays contributions into a retirement plan (employer-funded bAV), or the employee invests part of their gross salary into a bAV through salary conversion. This form of retirement planning offers tax advantages, can be supplemented by employer contributions, and helps close the pension gap in old age.
Implementation methods of the company pension scheme (bAV)
Direct insurance scheme:
In this model, the employer takes out a life insurance policy on behalf of the employee. Contributions can be made by the employer or through salary conversion by the employee. This option is particularly popular among small and medium-sized businesses.
Pension Fund (Pensionskasse):
A legally independent pension institution supported by one or more companies. It is subject to insurance supervision and provides collective retirement benefits.
Pension Fund (Pensionsfonds):
These funds have greater flexibility in investment strategies and may hold a higher proportion of equities, which can potentially generate higher returns but also involves higher risks.
Direct pension commitment (Direktzusage):
The employer commits to paying a specific benefit to the employee upon retirement. To do this, the employer sets up provisions on the balance sheet. Payments are made directly from company assets.
Support Fund (Unterstützungskasse):
A legally independent pension institution operating off the company’s balance sheet. It offers flexible structuring options but is often more complex to administer.
Social partner model:
A collectively bargained occupational pension model without employer liability. Introduced in 2018 in Germany, it can only be used by companies bound by collective agreements.
Who can take out a company pension scheme (bAV)?
In principle, occupational pension schemes are available to all employees subject to social insurance contributions. Since 2002, employees in Germany have had a legal right to a bAV through salary conversion, allowing them to allocate part of their gross salary to retirement savings.
Employers are required to offer this model but can decide which implementation method to use. In many cases, employers voluntarily contribute their own subsidies (a legal requirement since 2019) or even fully finance the contributions themselves.
Benefits for employees
A key advantage is the tax treatment: contributions to a company pension scheme are tax-free and exempt from social security contributions up to certain limits. This means employees can effectively save more for retirement through a bAV (from their gross salary) than they could by saving the same amount privately (from their net salary). In addition, since 2019, employers are required to pay a 15% subsidy on converted contributions if they save on social security contributions. This increases the accumulated capital and leads to a better pension in retirement.
Another advantage of the bAV is its security. Contributions are invested either through insurance providers or company pension institutions, enabling stable long-term pension payments.
Government support for occupational pension plans (bAV)
The state promotes the bAV in several ways:
Tax exemption: Contributions to a bAV are tax-free up to 8% of the contribution assessment ceiling of the statutory pension insurance. In 2025, this corresponds to a monthly amount of up to €644.
Social security contributions: Up to 4% of the contribution assessment ceiling (2025: €322 per month) can be paid into the bAV without social security contributions. This reduces deductions for health, long-term care, unemployment, and pension insurance.
Support for low-Income employees: Employers who make contributions to the bAV for employees with a monthly gross income of no more than €2,575 receive a government subsidy of 30% of the contribution, up to a maximum annual support of €288.
Taxation, basic security, and job change
While the bAV offers many advantages, there are some important points employees should consider:
Taxation: Pension payments from a company pension scheme are fully taxable. This means that retirement benefits are taxed when received, which can reduce the effective pension amount.
Health and long-term care contributions: Retirees insured under statutory health insurance must pay contributions on their company pension. Since January 1, 2025, a monthly exemption of €187.25 applies, up to which no health insurance contributions are due.
Portability and continuation: In principle, a bAV can be transferred to a new employer’s pension system or continued privately. Certain conditions must be met, so it is advisable to discuss the continuation of retirement benefits with the new employer early. Employees who cannot or do not wish to transfer their bAV should explore alternative continuation options.
Basic security exemption: Since 2018, retirees receiving company pensions may keep a minimum of €100 and a maximum of €200 per month without these benefits being offset against basic social security. This ensures that even employees with low pension entitlements can benefit from a bAV without their additional income fully reducing their basic security benefits.
Element of retirement planning
The company pension scheme (bAV) offers flexible ways to prepare for retirement while benefiting from tax advantages and employer contributions. In particular, the guaranteed benefits and government support make the bAV an effective form of retirement planning.
Choosing the right implementation method can significantly impact the flexibility and profitability of retirement savings. Professional advice is recommended to identify the best options and fully leverage the individual benefits of the bAV. Making an early decision on the right retirement plan can be crucial for securing your standard of living in retirement and ensuring financial independence.