The company pension, explained

📌What it is, and your right to one

The company pension (betriebliche Altersvorsorge, or bAV) is the second of Germany's three retirement pillars. The most common form is salary conversion (Entgeltumwandlung): part of your gross salary goes into a pension contract instead of your bank account.

Section 1a of the company pensions act gives employees a legal entitlement to this. Your employer cannot refuse it, though they may choose which provider it runs through. Many companies have a framework agreement in place already and simply never mention it to new joiners.

💶Why it is cheaper than saving from net pay

Because the contribution comes off your gross salary, it reduces both your income tax and your social contributions in the same move.

On top of that, employers must add a 15 % subsidy on converted amounts where they save social contributions themselves. That is a legal minimum, not a perk — and many employers voluntarily contribute considerably more, which is the single most important thing to ask about before signing anything.

💶What it costs you now, and what it pays later

The practical effect of converting €200 a month of gross salary is a reduction in net pay of noticeably less than €200 — often around €100 to €120 for a middle income, because tax and social contributions would have taken the difference anyway. The employer subsidy then adds at least €30 on top of the €200.

The catch arrives in retirement. Company pension payments are taxed in full as income, and they carry health and care insurance contributions. There is a monthly allowance — €197.75 in 2026 — that is free of health contributions, but for long-term care insurance the same figure works as a threshold rather than an allowance: exceed it and the whole payment is liable.

This is what people mean when they call it deferred rather than avoided taxation. It is usually still worthwhile, because most people's tax rate in retirement is lower than during their working life — but it is not free money, and anyone who tells you it is has not read the second half of the contract.

📌Vesting, job changes and portability

Contributions you make yourself from salary conversion are yours immediately. Employer-funded contributions vest after three years, provided you are at least 21 — leave earlier and that portion can be lost.

When you change jobs, you generally have three options: leave the contract paid-up with the old provider, transfer the accrued value to the new employer's scheme, or continue paying into it privately where the contract allows. The transfer right applies within limits, and the arithmetic differs by contract type, so this is worth checking at the point of the job change rather than years later.

📌What happens if you leave Germany

The contract does not disappear. It stays in place and pays out at retirement age, to you, wherever you are living. What usually stops is the contributions, since salary conversion requires German employment.

Two things to sort out before you go: make sure the provider has a permanent address and contact route for you, and decide whether to leave the contract paid-up or explore continuing it privately. Contracts left behind and forgotten are a genuinely common way for people to lose track of money that is theirs.

Whether a bAV is the right vehicle at all depends heavily on how long you expect to stay. For someone planning three more years in Germany, the tax advantage is small and the complications are not. For someone building a life here, it is usually the most efficient of the available routes.

📌The five forms it can take

German law recognises five implementation routes, and which one you get is decided by your employer rather than by you. The differences matter mainly when you change jobs or leave the country.

If you expect to move employers or countries, a Direktversicherung is generally the easiest to carry with you. It is worth asking which type is on offer before you sign, because the answer is rarely volunteered.

❓Questions to ask your employer before signing