Germany's Company Pension Scheme (bAV) – The Ultimate Guide

If you're employed in Germany, you likely have access to one of the most valuable retirement benefits available: the company pension scheme (betriebliche Altersvorsorge, or bAV). It's a tax-efficient way to boost your retirement savings beyond the state pension—and your employer is legally required to offer it.

This guide explains how the bAV works and how to make the most of it.

What Is the bAV?

The bAV (betriebliche Altersvorsorge) is an employer-sponsored retirement savings plan. It sits alongside the state pension as the "second pillar" of Germany's pension system.

Key features:

Employer involvement — Your employer facilitates the plan and often contributes
Pre-tax contributions — Your money is deducted before taxes
Government incentives — Tax relief and social security savings

How bAV Works

Contributions

Source	Details
Employee (you)	Contribute from pre-tax salary
Employer	Often matches or adds contributions
Government	Tax and social security relief

By law, employers must allow you to contribute up to 8% of your gross salary (up to €7,728/year in 2026) to a bAV. The first 4% is fully exempt from taxes and social security contributions.

Deferred Compensation (Entgeltumwandlung)

This is the most common way to fund a bAV:

1. You "defer" part of your salary into the pension

2. This reduces your taxable income

3. Your employer may add their own contribution (often 15%+ of what you defer)

Since 2019, employers must add at least 15% to your deferred compensation if they save on social security contributions.

Unsure about your pension options? Get expert guidance.

The 5 Types of bAV

Type	Description
Direktversicherung	Employer takes out an insurance policy in your name (most common)
Pensionskasse	External collective pension fund
Pensionsfonds	Flexible investment fund with potentially higher returns
Unterstützungskasse	Employer-managed support fund (often for executives)
Direktzusage	Employer promises to pay directly at retirement (large companies)

Most employees will be offered a Direktversicherung (direct insurance) or Pensionskasse.

Benefits of bAV for International Residents

1. Boost Your Retirement Income

The state pension alone may not be enough for a comfortable retirement. bAV provides additional, tax-advantaged savings.

2. Employer Contributions

Many employers contribute money on top of what you save—essentially free money for your retirement.

3. Tax and Social Security Savings

Contributions reduce your taxable income and (up to limits) your social security contributions.

4. Portability

If you leave Germany or change jobs, your bAV savings remain yours. You can:

Transfer to a new employer's scheme
Keep the policy and continue contributing
Receive payments at retirement, wherever you live

How to Enrol

1. Check with your employer — Ask HR if a bAV is offered

2. Choose the contribution amount — Decide how much to defer (up to 8% of gross)

3. Select the scheme type — Your employer may offer options

4. Sign the contract — Agree to terms and start contributing

What Happens When You Leave?

Situation	What Happens
Change jobs in Germany	Transfer to new employer's scheme or keep existing
Leave Germany	Keep the policy; receive pension at retirement
Early withdrawal	Generally not possible; funds are locked until retirement

Your bAV is fully portable—payments can be made to you anywhere in the world.

Payout Options at Retirement

When you retire (from age 62 for contracts signed after 2012), you can typically choose:

Option	Description
Lifelong pension	Fixed monthly payments for life
Partial lump sum	30% upfront, rest as monthly pension
Full lump sum	Entire amount at once (taxed as income)

Optimising Your bAV

1. Negotiate Employer Contributions

Even a small increase from your employer compounds significantly over decades.

2. Combine with Other Plans

Consider pairing bAV with:

Riester-Rente (additional subsidies if eligible)
Rürup / Basis-Rente (for tax efficiency)
Private pension insurance (for flexibility)

3. Review Annually

Check your statements to ensure your plan performs as expected.

Key Considerations

Reduced state pension: Lower social security contributions = slightly lower state pension
Taxation at payout: Pension payments are taxable (though usually at a lower rate than during working years)
Minimum age: Can't access funds before 62

Getting Started

The bAV is one of the most tax-efficient ways to save for retirement in Germany. If you're employed and not yet participating, you may be leaving money on the table.

At Stay, we help international residents understand their pension options and maximise their retirement savings. If you'd like personalised guidance, we're here to help.