Company Pension Plan Germany [Ultimate 2025 English Guide]

Posted by:

GermanPedia

|

Last Updated:

March 25, 2025

|

Views:

1,855

Key Takeaways

The company pension plan is for employees only. And every employee in Germany has the right to get a company pension plan.
Since 2019, every employer in Germany must add at least 15% to the employees’ pension contributions on top.
Companies can implement company pension insurance in five ways: direct insurance, pensionfonds, pensionskasse, provident fund, and direct commitment by a company.
A company pension plan is worthwhile for low and average earners. You should also consider taking a company pension plan if your employer contributes more than 25% of the contributions or guarantees at least 2% interest.

This is how you do it

Check with your employer if they offer a company pension plan. If they don’t, you can still get a private company pension plan and ask your employer to contribute.
You can also negotiate your employer’s contribution to the company pension plan during your salary negotiations. Employers also benefit by contributing to employees’ company pension plans. Thus, the probability of your employer increasing the contributions is higher.
You can also start saving in an ETF savings plan. It offers better returns and high flexibility. You can open a free depot account with Scalable Capital*, Finanzen.net Zero*, or SmartBroker+* and start investing.
Investing in real estate is another way to build your old age provision. We have written a book to guide you through the home-buying process. Whether you want to invest or buy for yourself, you’ll learn everything you need in this book.

What is a company pension scheme in Germany?

A company pension scheme or occupational pension scheme is for employees only. It is called “betrieblicher Altersvorsorge (bAV)” in German.

Under the company pension scheme, you and your employer contribute to the monthly pension contribution. And in return, you get monthly pension payments after retirement.

You pay the monthly premium from your gross salary (deferred compensation). Thus, don’t pay taxes and social contributions. And your employer adds at least 15% of the pension contributions on top.

You have the following options to get paid after retirement.

Monthly pension throughout life.
All the capital is paid out immediately after retirement (lump sum payout).
Part of the capital is paid out immediately after retirement, and the rest is in monthly pensions.

For example, suppose you want to contribute 250 € every month to your company pension plan.

In this case, your net income will reduce by approx. 129.43 € only as you pay 250 € from your gross salary. But you invested 250 € + 37.5 € (15% of 250 € from your employer) into the company pension scheme.

Thus, you save 120.57 € monthly in taxes and social security contributions and get 15% (37.5 € every month in this example) from the employer for free.

NOTE: All these savings might suggest that taking a company pension scheme is a no-brainer. But in reality, it’s not worth taking a company pension scheme, as you’ll see next in this guide.

Is it worth taking a company pension policy in Germany?

Whether you should get a company pension plan depends on the following factors.

Your income
Your employer’s contribution
Interest rate guarantee your contract offers.

So, taking a company pension plan is worthwhile in the following cases.

You are an average earner or earn below 5,512.5 € per month (as of 2025). By contributing to the company pension plan, you enjoy social security benefits on top of tax benefits.
Your employer contributes at least 25% of the pension contributions. This improves the real return on investment and makes the company pension worthwhile.
The company pension plan guarantees at least 2% interest. Again, the higher the interest rate, the better the returns.

It’s not worth it for high earners. To be more specific, for people earning above 5,512.5 € per month (as of 2025).

5,512.5 € per month (as of 2025) is the income limit for calculating the public health insurance premium. You pay the maximum health insurance contribution if you earn above the income limit.

Suppose your income is above this limit after deducting your contributions to the company pension plan. In this case, there is no social security benefit. You’ll end up paying maximum public health insurance contributions.

Without social security benefits, tax benefits alone don’t make a company pension plan attractive. But, if your employer contributes more than 25% or you can get a pension plan that guarantees at least 2% interest, then it’s attractive for high earners also.

Advantages of the Company Pension Scheme Germany

Tax and social security benefits as you pay the contributions from your gross salary. However, the tax and social security benefits are limited to 644 € and 322 € per month (as of 2025), respectively.
German law requires every employer to contribute at least 15% to the company pension scheme.
If you are compulsorily insured with public health insurance after retirement, you don’t pay health insurance premiums on the first 176.75€ of your monthly pension.

NOTE: You pay tax and social security on your monthly pension after retirement. This reduces or eliminates the tax and social security benefits you enjoyed during the saving phase. This is why high interest rates and employer contributions are vital to make a company pension plan attractive.

Disadvantages of company pension plan in Germany

You’ll pay income tax and social security contributions on your monthly pension after retirement. It’ll reduce or eliminate the tax advantages you enjoyed during the savings phase.
You might not live long enough to receive the full amount you paid into the pension. However, you can overcome this disadvantage by withdrawing all or part of the company pension after retirement (lump sum payment).
You contribute to the company pension from your gross salary. Hence, you enjoy tax benefits and low social security contributions. But at the same time, with reduced gross income, your monthly contribution to the statutory pension insurance also declines. Hence, reducing your statutory pension after retirement. Thus, you should also consider the reduced state pensions when calculating company pension benefits. This doesn’t apply to high earners whose income stays above the contribution assessment limit after deducting the company pension contributions.

You can learn about other pension schemes available in Germany in our guide on Pensions in Germany.

How many employees in Germany have occupational pension schemes?

Total employed population in Germany	45.6 million as of Jan. 2025 46.01 million as of Dec. 2023
	as of 2023
Total employees with one or more types of company pension schemes	18.1 million (39.3% of total employees in Germany)
Total active company pension plans in Germany	20.9 million (It means people took multiple company pension schemes)
Pensionsfonds	0.7 million
Pensionskasse	3.9 million
Direct commitments and Provident fund	4.6 million
Direct insurance	5.5 million
Public supplementary pension providers	6.3 million

Total number of employees who have a company pension plan in Germany (as of 2023)
Source: [1, 2]

How many types of company pension schemes are available in Germany?

types of company pension plans in Germany

There are 5 types of company pension schemes in Germany.

Direct insurance (Direktversicherung in German)
Pension fund (Pensionskasse in German)
Pension fund (Pensionsfonds in German)
Provident fund (Unterstützungskasse in German)
Direct commitment by a company (“Direktzusage eines Unternehmens” in German)

All types of company pension plans have the same core concept. They differ regarding who takes the pension insurance policy and where your money is invested.

Direct insurance (Direktversicherung in German)

A direct pension plan is the most popular form of the company pension scheme. In it, your employer takes a life or pension insurance policy on your behalf.

As the employer takes out a pension insurance policy for all its employees, it can negotiate good offers with insurance companies. However, this comes with a limitation.

The limitation is that your new employer might not take over your company pension plan. The reason is employers don’t want to manage pension contracts from different insurance providers.

Hence, direct insurance is not the best option for frequent job changers.

Pensionskasse

In this company pension scheme, employees contribute to a pension fund (Pensionskasse) every month from their gross salary.

The Pensionskasse does not invest your money in ETFs or high-risk investments. Instead, it puts your money in safe bonds.

Hence, Pensionskasse guarantees a minimum pension in the retirement phase. But offer low-interest rates on your saved money.

Pensionsfonds

Pensionfonds are similar to Pensionskasse. The only difference here is the pension company invests your money in ETFs or high-risk investments.

Hence offering higher returns with higher risks.

Provident fund (Unterstützungskasse in German)

In this type of company pension plan, pension contributions go into a legally independent institution. The provident fund institution manages the money and invests it wherever it sees fit.

In a provident fund pension plan, your employer has a say on where the money is invested. Moreover, your employer can take a loan against the provident fund.

But don’t worry; your pension is secure even if your employer goes bankrupt.

The insurance company that manages the provident fund ensures that your pension is safe by taking an insurance policy.

As your insurance company takes insurance to reduce the risk, it’s also called a reinsurance policy.

Lastly, there is no upper limit on provident fund pension plan contributions. So, high earners can maximize their tax benefits by contributing more from their monthly gross salary.

Direct commitment by a company (“Direktzusage eines Unternehmens” in German)

Your employer finances the direct commitment pension insurance plan. Depending on how your employer has set up the pension provision, you may not have to contribute anything to the pension scheme.

So, your employer invests the money, which later finances your pension.

Employers may promise an exact pension amount after retirement or that you’ll receive at least the contributions made by you.

But lately, very few employers in Germany offer direct commitment pension schemes. It’s because the risk of being unable to fulfill the pension benefits promise is too great.

Still, you should check with your employer about their company pension provisions. And if your company offers a fully financed pension plan, take it.

How to get a company pension plan in Germany?

Every employee in Germany has the right to company pension insurance.

You can ask your employer if they offer any company pension schemes. If yes, you can participate in it. Otherwise, you can take a company pension policy yourself.

Moreover, since 2019, employers in Germany must add at least 15% to the employee’s pension contributions on top.

Alternatives to company pension schemes in Germany?

There are two alternatives to occupational pension provision.

Invest in broad-market ETFs
Invest in real estate

ETF saving plan

You can open a free ETF savings plan with a broker in Germany and invest in low-cost, broad-market ETFs.

Investing yourself allows you to use your money how you want. Moreover, the capital gain tax you must pay when selling your investment is flat at 25% plus a 5.5% solidarity surcharge and church tax if applicable.

In the case of a pension, you pay social security contributions and income tax based on your personal tax rate, which is more than the capital gains tax.

You can open a free depot account with Scalable Capital* or Finanzen.net Zero* and start investing.

Scalable Capital

Free savings plans for all ETFs
Invest from 1 euro savings amount
Flexible execution dates and frequencies

Go to Scalable Capital*

Finanzen.net Zero

Very low fees
Free savings plans
The account and securities custody are held by Baader Bank

Go to Finanzen.net Zero*

Real estate investment

Another proven alternative to pension insurance is buying a property. You can rent the property or live in it yourself. Either way, it’s better than the company pension schemes.

You can sell the property when you retire for a lump sum payout. Moreover, you don’t pay any taxes on your profit if you sell the property after 10 years.

Buying a home in Germany is time-consuming and involves a lot of money. There are a lot of things you must know before buying a property.

Thus, we wrote a book on buying a house in Germany to make it simple for you. Read it to learn everything there is about buying a property in Germany.

Buy a house in Germany – eBook

Learn complete process of buying a house in Germany and how to invest in German real estate.
Understand mortgage process, property documents and evaluation, and more.
Expert tips that’ll save you thousands of euros.
Know average renovation costs in Germany to plan and negotiate better.

Get your copy

Changes in German law concerning company pension schemes

Here is a timeline of the German government’s changes to the company pension schemes.

Since 2002: Employees in Germany have the right to pay part of their monthly gross salary into a company pension contract. As you contribute to the pension insurance from the gross salary, you defer your income to the future. Thus it’s also called “deferred compensation.”
Until 2017: To receive a company pension, you must have stayed with the company for at least 5 years and be at least 25 years old when leaving the company.
From 2018: To receive a company pension, you must have stayed with the company for at least 3 years and be at least 21 years old when leaving the company.
Since 2018: You can contribute up to 8% of the German state pension contribution assessment limit tax-free into a company pension plan. So, as the “German state pension contribution assessment limit” increases, your tax-free contribution to the company pension plan also increases. You can contribute 644 € per month tax-free to your company pension scheme in 2025.
Since 2018: Similarly, contributions to the company pension plan of up to 4% of the “German state pension contribution assessment limit” are free from social security contributions. It’s 322 € per month in 2025.
Since 2019: Every employer in Germany must add at least 15% to the employees’ pension contributions.
Since 2022: Every employer in Germany must subsidize existing company pension contracts signed before 2019.
Since 2020: After retirement, you don’t pay health insurance contributions on the first 176.75 € of your monthly pension benefits. This amount is revised every year.

FAQs

Is a company pension scheme mandatory in Germany?

No, taking a company pension plan is not mandatory in Germany.

You have the right to a company pension plan. Whether you execute that right is your choice.

What happens to my company pensions when I switch jobs?

The amount you saved in the occupational pension provision isn’t lost when you switch jobs.

There are four main options in this situation.

You can continue the old company pension plan on your own. It means you’ll be contributing from your net income instead of gross. Hence, you won’t benefit from the social security and tax incentives.
Your new employer takes over the old company pension policy. However, it’s rare for new employers to do so as they don’t want to manage pension contracts from different providers.
Transfer your existing saved capital to the company pension scheme of your new employer. There are transfer fees involved, which may reduce your saved capital.
Lump sum payoff as part of the severance package. You can request your employer to pay off the capital saved in the company pension plan as part of the severance package. But you have to repay the saved taxes and social security contributions.

What happens to my company pensions if the employer files for bankruptcy?

You don’t have to worry about losing your company pension, even if your company goes bankrupt.

Pension Insurance Association (Pensionssicherungsverein (PSV)) takes over your company pension payments.