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 grow your retirement savings beyond the state pension, and your employer is legally required to offer it.
In this guide, we will explain how the bAV works, its benefits, and how to make the most of it.
The bAV (betriebliche Altersvorsorge) is an employer-sponsored retirement savings plan. This means that it's set up through your workplace rather than something you arrange on your own. It plays a key role alongside the state pension as the "second pillar" of Germany’s pension system and is designed to help you build extra retirement security while you’re working.
Its main benefits are:
The bAV (Betriebliche Altersversorgung) is designed to help employees save for retirement while benefiting from employer support and government incentives. Here's how contributions work:
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.
Employer contributions. Many companies choose to contribute to their employees' bAV plans as an additional benefit. Some employers fully fund the pension, while others match employee contributions or provide a fixed percentage.
Employee contributions. Employees also have the option to contribute a portion of their salary to their bAV. What makes this particularly attractive is that these contributions are often tax-free and reduce taxable income, meaning employees can save for retirement while paying less in taxes today.
Government incentives. The German government encourages participation in bAV by offering tax and social security relief on contributions. This means that by choosing a bAV, employees enjoy immediate financial benefits, such as lower taxes and reduced social security deductions.
| Source | Details |
|---|---|
| Employee (you) | Contribute from pre-tax salary |
| Employer | Often matches or adds contributions |
| Government | Tax and social security relief |
This is the most common way to fund a bAV. With a deferred compensation plan, you can choose to set aside part of your salary and have it directed into a company pension scheme (bAV) instead of receiving it as immediate income. Essentially, this means your employer withholds a portion of your earnings and allocates it to your pension savings.
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.
When it comes to company pension plans in Germany, there are five main types, each offering different benefits and structures. Here's a short summary:
| Type | Description |
|---|---|
| Direktversicherung | Your employer takes out an insurance policy in your name. This is the most widely used option and usually the simplest to manage. |
| Pensionskasse | A shared pension fund run by an external provider, often used by multiple employers. |
| Pensionsfonds | A more flexible investment-based fund with the potential for higher returns. |
| Unterstützungskasse | An employer-managed support fund, typically offered to higher earners or executives. |
| Direktzusage | Your employer commits to paying your pension directly when you retire, usually seen at larger companies. |
Most employees will be offered a Direktversicherung (direct insurance) or Pensionskasse.
Relying on the state pension alone may not be enough to enjoy a comfortable retirement. bAV provides additional, tax-advantaged savings.
Many employers contribute money on top of what you save, think of it as free money for retirement.
Contributions reduce your taxable income and (up to limits) your social security contributions, giving your money even more room to grow.
If you leave Germany or change jobs, your bAV savings remain yours. You can:
The enrolment process is simple and involves a few key steps:
One of the biggest advantages of a company pension scheme is that your bAV is fully portable, you can receive payments anywhere in the world. Here are three common scenarios to show how it works:
| Situation | What Happens |
|---|---|
| Change jobs in Germany | You can transfer your bAV to your new employer's scheme or keep your existing plan |
| Leave Germany | You can keep the policy and receive payments when you retire, wherever you live |
| Early withdrawal | Generally not possible; the funds are generally locked until retirement, so your savings stay safe for the future |
When you retire (from age 62 for contracts signed after 2012), you can typically choose:
| Option | Description |
|---|---|
| Lifelong pension | Receive fixed monthly payments for the rest of your life (steady income you can rely on). |
| Partial lump sum | Take 30% upfront as a lump sum, and receive the rest as a monthly pension. |
| Full lump sum | Get the entire amount at once (taxed as income) |
To make the most of your pension plan, consider these strategies:
If possible, negotiate for higher contributions from your employer. Even a small increase can significantly grow your retirement savings over time.
Consider pairing bAV with:
Check your plan's performance at least once a year to ensure it's on track with your goals, so you can make adjustments if needed.
All in all, the bAV is one of the smartest ways to save for retirement in Germany, letting you grow extra savings beyond the state pension. Whether you're just getting started or looking to make the most of your plan, there are plenty of options available to fit your needs.
At Stay, we help international residents understand their pension options and maximize their retirement savings. If you'd like personalised guidance, we're here to help. You can arrange a free consultation with us today!