What the law requires of an employer
This page is about the duties of the company. If you want to know what a bAV (company pension) gives you personally as an employee, see our overview of the Betriebsrente for employees.
For a company, betriebliche Altersvorsorge is not an optional extra but a set of obligations. There are three of them, and the first two are most often breached out of ignorance.
First: you cannot refuse an employee. Section 1a of the Betriebsrentengesetz (Occupational Pensions Act) gives every employee insured in the statutory pension system the right to demand Entgeltumwandlung (salary conversion). You choose the Durchführungsweg (the way the scheme is run) and the provider, but you cannot refuse the right itself.
Second: the top-up. If the salary conversion saves you social security contributions, you must pass that saving to the employee as a top-up of up to 15 percent of the converted amount. For contracts concluded from 1 January 2019 this applies immediately, for all others since 1 January 2022. The top-up is capped at the actual saving, so it is calculated only on the part that does not exceed 4 percent of the Beitragsbemessungsgrenze (BBG, the contribution ceiling).
Third: the duty to inform. The employee must understand which Durchführungswege and types of commitment exist and what the tax and social-insurance consequences of the chosen option are. The law prescribes no particular form, but in a dispute it is you who must prove that you explained.
The hidden risk: Einstandspflicht
This is the point usually skipped in conversations about occupational pensions — and it defines the entire risk profile of the company.
Section 1(1) sentence 3 of the Betriebsrentengesetz puts it plainly: the employer remains liable for the benefits he promised even when the scheme is not run directly by him. You handed the money to an insurer or a Pensionskasse — the obligation towards the employee stays with you.
In practice that means: if the external provider cannot deliver the promised level of benefit, the company pays the difference. Such cases are not hypothetical — when individual Pensionskassen lowered their guaranteed rate, employers had to close the gap out of their own funds.
From this follows a simple consequence. Choosing a provider is not a hunt for the cheapest offer. It is a decision about whose obligations you will ultimately guarantee with your own balance sheet.
What it actually costs the company
What matters is not the gross contribution but the net effect.
With Entgeltumwandlung the company saves its share of social contributions on the converted amount — around 20 percent within 4 percent of the BBG. Out of that saving you must pass 15 percent of the converted amount to the employee. At maximum conversion the mandatory top-up roughly equals what was saved: in pure cash terms, a bAV on minimum conditions costs the company close to nothing.
This is worth understanding before talking to staff: the mandatory 15 percent is not a gift, it is money handed back. Everything above that is a real cost item — and it is exactly that which works as an argument in recruitment.
Subsidy for low earners: section 100 EStG
A separate mechanism that few companies know about, although it is direct and simple.
If an employee’s gross income does not exceed 2,575 euros a month and you pay an employer contribution for him of between 240 and 960 euros a year, the state refunds you 30 percent of that contribution — up to 288 euros a year. The refund runs through the Lohnsteuer-Anmeldung (payroll tax return); no separate application is needed.
From 1 January 2027 the conditions widen: the income limit is no longer fixed but tied to 3 percent of the Beitragsbemessungsgrenze, and the maximum refund rises to 360 euros a year.
This is expressly about the employer contribution, not the employee’s salary conversion. For firms with a high share of staff on lower pay it is the cheapest way to provide a real additional benefit.
Choosing the Durchführungsweg: consequences for the balance sheet
The five Durchführungswege differ not in convenience but in what happens to the company balance sheet and to its liability.
- Direktversicherung — a contract with an insurer, the balance sheet is untouched, no contributions to the Pensions-Sicherungs-Verein (PSV, the insolvency protection fund for company pensions). The simplest option for small and medium-sized firms.
- Pensionskasse — a legally independent institution supervised by BaFin, off the balance sheet.
- Pensionsfonds — freer in how it invests, but requires contributions to the Pensions-Sicherungs-Verein.
- Unterstützungskasse (support fund) — off the balance sheet, used mainly for large contributions since the limits of section 3 no. 63 EStG do not apply. PSV contributions are mandatory.
- Direktzusage — a promise out of the company’s own funds. Requires Pensionsrückstellungen (pension provisions) on the balance sheet and PSV contributions. The most administratively demanding option.
For a company with up to a few dozen staff the choice comes down in practice almost always to a Direktversicherung. The other routes make sense for large contributions, for commitments to management, or where a legacy scheme already exists.
What the BRSG II changed
The Second Occupational Pensions Strengthening Act was promulgated in the Bundesgesetzblatt (Federal Law Gazette) on 21 January 2026 and largely came into force the following day. Four changes matter for employers.
- Optionssysteme (opt-out systems) — automatically enrolling staff in a bAV with the right to decline — are now possible without a collective agreement. The employer top-up in such a system is 20 percent.
- The thresholds for buying out small entitlements have been raised: the standard limit is 1.5 percent of the monthly Bezugsgröße (social insurance reference figure), that is 59.32 euros of monthly pension; with the employee’s consent and a transfer into the statutory pension insurance, 2 percent, that is 79.10 euros. This relieves the company of administering many tiny contracts of former staff.
- Joining existing Sozialpartnermodelle (social partner models) has been simplified. For a company without its own collective agreement this is a realistic route to a scheme without Einstandspflicht.
- From 2027 the subsidy under section 100 EStG is extended.
How to introduce a bAV: the order of steps
The sequence that saves you from rebuilding later:
- define the goal — meet the statutory minimum or use the bAV as a recruitment argument; everything else follows from that;
- choose the Durchführungsweg with the balance sheet, administration and Einstandspflicht in mind;
- choose the provider — the criterion is not price but the reliability of the obligation you are guaranteeing;
- set the rules out in the Versorgungsordnung (pension scheme rules): who participates, which contributions, what conditions apply to survivor benefits;
- agree it with the Betriebsrat (works council) if there is one — Optionssysteme and allocation rules are subject to co-determination;
- document the information given to staff in writing and keep the evidence;
- set up payroll: the conversion, the top-up and the Förderbetrag under section 100 EStG.
Think through the Hinterbliebenenversorgung (survivors’ benefits) separately. Restrictions in a Versorgungsordnung tied to the age at marriage are regularly held invalid by the courts — we set out the case law of the Bundesarbeitsgericht (Federal Labour Court) in detail on the page about the widow’s pension. A clause copied from an old template can lead to a payment you never planned for.
Frequently asked questions
Can the group of participants be limited
Everyone insured in the statutory pension system has the right to Entgeltumwandlung and it cannot be limited. Employer contributions above the mandatory minimum may however be differentiated — by length of service or job group — provided the criterion is objective and not discriminatory.
What happens when an employee leaves
What was saved out of his salary is his from day one. For employer contributions the Unverfallbarkeit (vesting) rule applies: the entitlement survives if the commitment ran for at least three years and the employee has turned 21. Small entitlements may be bought out in a single payment within the limits given above.
Is paying into the Pensions-Sicherungs-Verein compulsory
Not for every Durchführungsweg. Contributions are compulsory for a Direktzusage, an Unterstützungskasse and a Pensionsfonds. With a Direktversicherung or Pensionskasse protection is provided through the insurance contract itself.
The PSV contribution rate changes annually and is announced in November. For 2025 it was 1.2 per mille of the assessment base against 0.4 per mille for 2024 — a tripling driven by a higher volume of insolvencies. The rate for 2026 will be set by the PSV in November 2026.
What happens if we simply do not offer a bAV
As long as nobody asks — formally nothing. But the employee’s right does not lapse: he can demand Entgeltumwandlung at any time, and a refusal would be a breach. On top of that, a failure to inform staff counts against the company in an audit.
We are a small business — do we need this?
The duty does not depend on company size. For a team of five a Direktversicherung on minimum terms can be administered with almost no effort. The real question is whether you want to use the bAV as a retention tool — and that is decided by the size of your top-up, not by the mere existence of a scheme.
