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.
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:
| 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.
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.
| 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.
The state pension alone may not be enough for a comfortable retirement. bAV provides additional, tax-advantaged savings.
Many employers contribute money on top of what you save—essentially free money for your retirement.
Contributions reduce your taxable income and (up to limits) your social security contributions.
If you leave Germany or change jobs, your bAV savings remain yours. You can:
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
| 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.
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) |
Even a small increase from your employer compounds significantly over decades.
Consider pairing bAV with:
Check your statements to ensure your plan performs as expected.
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.