Company Pension (bAV)

Betriebliche Altersvorsorge (bAV, company pension) is a pension program through employer where part of pre-tax salary goes into a pension plan. Since 2019, employer must add at least 15% to your contributions [1]. In 2025, you can contribute up to €7,728/year tax-free, up to €3,864/year free of social contributions [2]. Main advantage — employer matching; main drawback — money locked until retirement, and payouts are fully taxed.

How the System Works

You choose an amount from gross salary to direct into the pension plan (Entgeltumwandlung — salary conversion). This money is not subject to income tax, and within the first €3,864/year — also free of social contributions [2]. Employer must add at least 15% to your contributions [1].

Example: you contribute €300/month gross (€3,600/year). Employer adds minimum €45/month. Total going to pension plan is €345/month. Your net salary decreases by approximately €150, not €300, because you save on taxes and social contributions.

Types of bAV

There are five types of company pension programs in Germany [3]:

Type	Translation	Description
Direktversicherung	Direct insurance	Insurance policy in employee's name; most common type (used in ~60% of cases)
Pensionskasse	Pension fund	Independent organization managing pension assets
Pensionsfonds	Pension fund	Fund with broader investment options
Direktzusage	Direct commitment	Employer promises payments from own funds
Unterstützungskasse	Support fund	Separate organization financed by employer

Most companies use Direktversicherung [4].

2025 Contribution Limits (Entgeltumwandlung)

Limit Type	Annual	Monthly	Notes
Tax-free	€7,728 (8% of BBG)	€644	No income tax on contributions
Social security-free	€3,864 (4% of BBG)	€322	No SV charges on contributions

BBG = Beitragsbemessungsgrenze (€96,600 in 2025)

Example: €300/month gross → you "lose" only ~€150 net (within SV-free limit).

Employer Obligation

Since 2019, employer must add at least 15% to your contributions.

Your contribution €100 → employer adds minimum €15 → total €115.

Some employers add more (matching) — this is very beneficial.

Vesting Rules (Unverfallbarkeit)

Vesting is the period after which employer contributions become yours permanently.

Contribution Source	Vesting Period
Employee contributions (Entgeltumwandlung)	Immediate (your money stays yours)
Employer contributions	3 years of employment (if you are ≥21 at time of promise) [5]

If you leave before 3 years, employer contributions may be forfeited (depends on contract).

Small Entitlements (Abfindung)

If the accumulated pension provides less than €37.45/month (as of 2025), the provider may force a lump-sum payout [6]:

• Payout is taxed as ordinary income
• Asset is completely liquidated
• Often the only way to extract bAV money when leaving Germany (without accumulated monthly pension above threshold, you cannot withdraw funds before retirement age)

Advantages

Advantage	Effect
Tax savings	Contributions deducted from salary before taxation; save ~30–42% on contributions (depending on tax class)
Social contribution savings	Up to €3,864/year not subject to social contributions (~20% savings) [2]
Employer contribution	Minimum 15%, often more — this is "free money"
Automation	Money goes automatically, no temptation to spend
Creditor protection	Pension assets protected from seizure in most cases [7]

Disadvantages

Disadvantage	Effect
Money locked	Access only at retirement (usually from age 62); early withdrawal impossible
Taxation of payouts	Pension is fully taxed (nachgelagerte Besteuerung — deferred taxation) [8]
Health insurance contributions	GKV (public health insurance) and Pflegeversicherung (care insurance) contributions on pension payouts; about 11% of payout [9]
Low flexibility on transfer	When changing jobs, transfer to new plan not always possible; contract may remain "frozen"
Conservative returns	Most Direktversicherung provide 2–3% annual return (guaranteed part), lower than historical ETF returns (~7–8% nominal) [4]

Should You Participate?

Situation	Recommendation	Rationale
Employer matches ≥50%	Definitely yes	Free money outweighs all downsides
Employer matches 20-50%	Yes, up to match limit	20%+ is threshold where bAV is clearly beneficial
Employer adds only 15%	Compare with ETF	Mandatory 15% barely offsets taxation of payouts
No employer match	Generally avoid	Tax deferral alone rarely beats flexible ETF investing

Tip

Participate in bAV up to employer matching amount. The rest is better invested independently.

When Changing Jobs

When changing employers, you have three options for accumulated bAV assets [5]:

Option	Description	When to Use
Leave in old plan	Contract "freezes," contributions stop, asset continues to grow (or not, depending on terms)	If new employer doesn't accept transfer, or old plan is better
Transfer to new employer	New employer accepts assets and integrates into their bAV program	If new employer agrees and conditions are comparable or better
Continue contributions to old plan independently	You continue contributing to old contract without employer participation	Rarely beneficial; lose matching and tax advantages

Important: You cannot simply withdraw money when leaving. Only exception — if accumulated pension provides less than €37.45/month (Abfindung) [6].

FAQ

Not legal or financial advice.

I'm on probation (Probezeit) — should I start bAV immediately?

Legally, the right to Entgeltumwandlung (salary conversion) exists from day one — there is no probation restriction. However, employer matching (Arbeitgeberzuschuss) vesting requires 3 years of employment and minimum age 21 (§ 1b BetrAVG). If you leave during Probezeit (probation period, typically 6 months), your own contributions (Entgeltumwandlung) remain yours, but the employer's matching contributions may be forfeited if the vesting period has not been met. For the first 6 months, a common approach many employees take: evaluate the employer's bAV offer (matching percentage, product quality, fees) and decide after confirming the position is stable. Own contributions are always safe; the risk is losing employer matching if the employment ends early.

My employer offers only one expensive insurance product for bAV — what can I do?

The employer has the right to choose the bAV provider (Durchführungsweg — implementation path). You cannot force a different product. However, you can: (1) ask HR whether alternative providers are negotiable — some companies add options if employees request them; (2) calculate whether the employer matching still makes the expensive product worthwhile — 15% matching on €200/month = €30/month free money, which may offset 1.5-2% annual fees over more than 20 years; (3) limit contributions to the amount where matching applies and invest the rest independently in ETF. The breakpoint calculation: if the total product cost (TER + insurance wrapper) exceeds the effective matching benefit, the product destroys value. A Honorarberater (fee-based advisor) can model your specific numbers.

I change jobs every 2-3 years — is bAV worthwhile?

Frequent job changes create practical challenges with bAV. Each employer may use a different Durchführungsweg (implementation path) and provider. Old contracts can be: (1) left dormant (beitragsfrei gestellt — made contribution-free) — capital stays but stops growing meaningfully; (2) transferred to the new employer's plan (Portabilitat — portability) — the new employer must accept under certain conditions since 2005; (3) continued privately (rarely worthwhile without employer matching/tax benefits). With 3-year vesting for employer contributions, changing every 2-3 years means potentially losing matching at each transition. For highly mobile professionals, the administrative burden of managing multiple dormant bAV contracts versus a single ETF Depot (brokerage account) is a relevant factor. The 15% mandatory employer matching still provides guaranteed return for the contribution period.

My employer matches 100%, but the fund charges 2% TER — still worthwhile?

100% matching is exceptionally generous and typically outweighs even high fees. Calculation example: you contribute €200/month, employer adds €200 — a total of €400/month invested. The 2% TER on the growing balance costs approximately €96 in year 1 (on €4,800 total contributions). Your "return" from matching alone: 100% in year one. Even accounting for 2% annual fees over 20 years, the matching benefit dominates. The 2% TER reduces the final balance by roughly 25-30% compared to a 0.2% ETF — but the 100% matching more than compensates. The calculation changes if: (a) you leave before the 3-year vesting period (lose employer portion), or (b) the fund charges front-end loads (Abschlusskosten — closing costs) in addition to TER. Contribute up to the matching limit; invest additional savings in low-cost ETF.

I'm leaving Germany permanently — can I withdraw my bAV money?

Generally no — bAV money is locked until retirement age (62+). The only exception: if the accumulated pension yields a monthly payment below the Abfindungsgrenze (settlement threshold), currently €35.70/month (2025), the provider can pay out the entire balance as a lump sum (Abfindung — settlement). This is taxed as regular income in the year of payment. If the balance exceeds this threshold, the money remains in the contract and will be paid as a pension starting at age 62-67, regardless of where you live. The pension is then transferred to your foreign bank account. Tax treatment depends on the DBA (Doppelbesteuerungsabkommen — double taxation agreement) between Germany and your country of residence. For small bAV balances after short employment periods, the Abfindung route often applies naturally — which effectively makes bAV money accessible upon departure.

Sources

1. Bundesministerium für Arbeit und Soziales, "Betriebsrentenstärkungsgesetz: Arbeitgeberpflicht zum Zuschuss," Company Pension Strengthening Act (effective 01.01.2019), https://www.bmas.de/DE/Arbeit/Altersversorgung/Betriebsrente/betriebsrente.html

2. Deutsche Rentenversicherung, "Beitragsbemessungsgrenzen und Höchstbeiträge 2025," German Pension Insurance, updated November 2024, https://www.deutsche-rentenversicherung.de/DRV/DE/Experten/Zahlen-und-Fakten/Werte-der-Rentenversicherung/werte-der-rentenversicherung_node.html

3. BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht), "Durchführungswege der betrieblichen Altersversorgung," Federal Financial Supervisory Authority, https://www.bafin.de/DE/Verbraucher/Bank/Altersvorsorge/Betriebsrente/betriebsrente_node.html

4. Stiftung Warentest, "Betriebliche Altersvorsorge: Für wen sich die Betriebsrente lohnt," test.de, January 2024, https://www.test.de/Betriebliche-Altersvorsorge-Fuer-wen-sich-die-Betriebsrente-lohnt-5474251-0/

5. Bundesministerium der Justiz, "§ 1b BetrAVG: Unverfallbarkeit," Act on Company Pension Schemes (BetrAVG), current version, https://www.gesetze-im-internet.de/betravg/__1b.html

6. Deutsche Rentenversicherung, "Bagatellgrenze für Abfindungen in der bAV 2025," Lump-sum payout threshold, updated December 2024, https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Betriebliche-Altersversorgung/betriebliche-altersversorgung_node.html

7. Bundesministerium der Justiz, "§ 851c ZPO: Unpfändbarkeit von Altersvorsorgevermögen," Civil Procedure Code, protection of pension assets from seizure, https://www.gesetze-im-internet.de/zpo/__851c.html

8. Bundesministerium der Finanzen, "Nachgelagerte Besteuerung von Alterseinkünften," Deferred taxation of pension payouts, https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Weitere_Steuerthemen/Altersversorgung/nachgelagerte-besteuerung.html

9. GKV-Spitzenverband, "Beiträge auf Betriebsrenten," Health insurance contributions on company pensions, 2024, https://www.gkv-spitzenverband.de/krankenversicherung/kv_grundprinzipien/finanzierung/beitraege/beitraege.jsp