The betriebliche Altersvorsorge (bAV, company pension) is a supplementary retirement scheme organised through the employer under the Company Pensions Act (Betriebsrentengesetz, BetrAVG), on top of the statutory pension. Employees have a right to salary conversion (Entgeltumwandlung, § 1a BetrAVG); where the employer saves social security contributions as a result, it must add a 15% subsidy (§ 1a (1a) BetrAVG). There are five implementation routes, tax relief under § 3 no. 63 EStG, and statutory vesting of entitlements.
At a glance
- Employer-organised supplementary provision under the BetrAVG, in addition to the statutory pension
- Every employee has a right to salary conversion (Entgeltumwandlung, § 1a BetrAVG)
- Mandatory employer subsidy of 15% of the converted amount, to the extent the employer saves social security contributions
- Tax relief under the EStG: contributions are tax-free up to 8% of the pension contribution ceiling (Beitragsbemessungsgrenze, BBG), and of that up to 4% is also free of social security contributions (2026 roughly €8,112 and €4,056 per year)
- Five implementation routes (Durchführungswege): Direktzusage, Unterstützungskasse, Direktversicherung, Pensionskasse, Pensionsfonds
- Statutory vesting (Unverfallbarkeit) of the entitlement and deferred taxation of the later pension
The five implementation routes (Durchführungswege)
- Direktzusage: the employer promises the benefit directly and pays it itself later
- Unterstützungskasse: a legally independent pension body funded by the employer
- Direktversicherung: the employer takes out a life or annuity policy in favour of employees; the most common route in smaller companies and start-ups
- Pensionskasse: a legally independent, mostly insurance-based institution
- Pensionsfonds: a legally independent provider with more flexible capital investment
FAQ
Does the employer have to pay a subsidy?
For salary conversion, yes. Under the BetrAVG the employer must add 15% of the converted amount, to the extent it saves social security contributions through the conversion. The duty has applied since 2019 for new agreements and since 2022 for agreements concluded before 2019. Many employers pay the 15% as a flat rate for simplicity.
How much stays free of tax and social security?
The EStG makes contributions tax-free up to 8% of the BBG for statutory pension insurance; only up to 4% is also free of social security contributions. Contributions between 4% and 8% remain tax-free but attract social security. The exact amounts change each year with the BBG (2026 roughly €8,112 tax-free and €4,056 social-security-free).
When does the entitlement become vested (unverfallbar)?
Entitlements funded through salary conversion are vested immediately. For employer-funded promises, statutory vesting under the BetrAVG applies once the promise has existed for at least three years and the person has reached the age of 21.
Which route suits small companies?
In practice smaller companies and start-ups usually choose the Direktversicherung: little administrative effort, no impact on the balance sheet, and simple implementation through an insurer.
Last updated: August 2026
This article provides general information and is not a substitute for legal advice in individual cases.
