Betriebsrente: the pension from your employer in Germany

What a Betriebsrente is and who is entitled to it

Betriebliche Altersvorsorge, or bAV for short, is the pension you build up through your employer. Formally it is his promise to pay you money once you retire: a lifelong pension or a single lump sum. The money usually comes out of your own salary, but before tax and social contributions, and in three of the five Durchführungswege (ways of running the scheme) the employer has to add 15 percent if he saves social contributions as a result.

Every employee insured in the gesetzliche Rentenversicherung (statutory pension insurance) is entitled to a bAV, including part-timers. A mini-job qualifies as well, unless you are exempt from compulsory pension insurance. The self-employed and freelancers are not covered — for them there is a tax-advantaged private pension, the Rürup-Rente.

The right to Entgeltumwandlung: what the employer must do

The employer cannot refuse a bAV; for collectively agreed pay, however, this applies only if the collective agreement (Tarifvertrag) provides for or allows it. Section 1a of the Betriebsrentengesetz gives every employee the right to demand that part of the salary goes into a pension contract. This is called Entgeltumwandlung — converting part of the pay into a pension contribution.

Where the right exists, he may not refuse, but he chooses the Durchführungsweg and the provider, not you. If the company already has an arrangement with a particular provider, you join that one.

Second, he has to contribute. If the employer saves social security contributions through your Entgeltumwandlung, he must pass that saving on to you as a top-up of up to 15 percent of the converted amount. For new contracts this has applied since 1 January 2019, for all others since 1 January 2022. So if you set aside 100 euros, the employer normally adds another 15.

We have set out separately everything a company has to do and what it is liable for — including the Einstandspflicht (employer liability) and the state subsidy: employer duties in occupational pensions.

How much can be paid in tax-free and contribution-free in 2026

The limits are tied to the Beitragsbemessungsgrenze — the ceiling for pension insurance contributions. In 2026 it stands at 101,400 euros a year.

This gives two thresholds:

• free of income tax — up to 8 percent of the BBG, that is 8,112 euros a year or 676 euros a month;
• free of social contributions — up to 4 percent of the BBG, that is 4,056 euros a year or 338 euros a month.

The gap between these two figures matters. Contributions between 4 and 8 percent stay free of income tax, but social contributions are due on them. That is exactly why the mandatory 15 percent top-up is calculated only on the part where the employer actually saved contributions, that is within 4 percent of the BBG.

Five ways to run a scheme

The law provides for five Durchführungswege, and the choice determines who bears the risk and how the money is accounted for:

• Direktversicherung — the employer takes out a life insurance policy in your favour. The most common option in small and medium-sized firms, because it demands no infrastructure from the company.
• Pensionskasse — a separate pension fund, legally independent and supervised by BaFin.
• Pensionsfonds — freer in how it invests, therefore potentially higher-yielding and riskier at the same time.
• Unterstützungskasse (support fund) — used mainly for large contributions, since the limits under section 3 no. 63 EStG (Income Tax Act) do not apply to it.
• Direktzusage — the employer promises to pay out of its own funds. Found mainly in large corporations.

In the first three cases you have your own contract and can take it with you. With the last two it is more complicated: when you change jobs the savings usually stay with the previous employer.

The most common of these routes is covered separately: what is deducted from a Direktversicherung payout and why the contributions run for ten years.

What happens to your savings when you change jobs

This is where Unverfallbarkeit — vesting — applies. For commitments made from 2018 the entitlement survives if two conditions are met at the same time: the commitment has run for at least three years and you have turned 21. Contributions you paid yourself out of your salary are vested from day one.

When you move to a new employer there are three routes: leave the contract with the old employer frozen, keep paying into it yourself, or transfer the accumulated capital into the new employer’s scheme. The last one is not always possible and depends on the Durchführungsweg.

The employer may buy out small entitlements in one payment without waiting for retirement. Since 2026 the thresholds are higher: the standard limit is 1.5 percent of the monthly Bezugsgröße (social insurance reference figure), that is 59.32 euros of monthly pension. With your consent, and if the money goes straight into the statutory pension insurance, it rises to 2 percent, that is 79.10 euros.

How to get out of a bAV if you change your mind

You cannot cancel a bAV contract and take the money out. The scheme is designed so that the payment starts only in retirement, and that is precisely its point: in exchange for freedom from tax and contributions you give up access to the money until 62.

What is actually available:

• Beitragsfreistellung — stop the contributions and keep the contract. What you have saved stays and is paid out at retirement, the amount is simply smaller. The most common and usually the most sensible step.
• Private continuation — after leaving the employer, transfer the contract into your own name and keep paying from your own funds. The bAV tax advantages then no longer apply.
• Transfer to a new employer — possible with a Direktversicherung, Pensionskasse or Pensionsfonds.

A lump sum is possible only in a few narrowly defined cases. First, for very small entitlements: if the future pension does not exceed 59.32 euros a month, the employer may buy it out — since 2026 even unilaterally. Second, by agreement with the employer under a Direktversicherung, Pensionskasse or Pensionsfonds, concluded while the employment relationship still exists.

If the company is wound up, the contract is normally not terminated: the Pensions-Sicherungs-Verein takes over the obligations.

Before you stop contributing, work out what you actually give up. If the employer pays considerably more than the mandatory 15 percent, going contribution-free means giving up his money too.

What is left in hand at payout

This is the part people talk about least when signing the contract, and it is the decisive one.

Contributions were untaxed going in, so tax falls due when the money comes out. A Betriebsrente is fully subject to income tax, like any other income. How painful that is depends on your overall tax rate in retirement — usually markedly lower than during your working years, and that is the whole point of the arrangement.

Health insurance is where it gets trickier. If you are insured in the gesetzliche Krankenversicherung (statutory health insurance), contributions to health and long-term care insurance are deducted from your Betriebsrente. The rules for the two differ, which regularly comes as an unpleasant surprise:

• in health insurance there is a Freibetrag — in 2026 that is 197.75 euros a month. Contributions apply only to the amount above that threshold. The Freibetrag applies only to compulsorily insured members, including those in the KVdR (statutory health insurance for pensioners); voluntarily insured members pay on the full amount;
• in long-term care insurance there is a Freigrenze, not a Freibetrag. Once the payment exceeds that same threshold, contributions are charged on the full amount, not just on the excess.

Put simply: on a 190-euro pension you pay nothing at all. On a 200-euro pension the health contribution is charged on 2.25 euros, while the care contribution is charged on the full 200.

The downside: what Entgeltumwandlung slightly reduces

Conversion lowers the part of the salary from which social contributions are calculated. But the benefits those contributions finance are calculated from the same figure. Four things are affected:

• Krankengeld (sickness benefit) — from the seventh week it is based on the Regelentgelt, that is on the same reduced earnings;
• Arbeitslosengeld I (unemployment benefit) — the Bemessungsentgelt (assessed earnings) of the last twelve months also takes the conversion into account;
• Elterngeld (parental allowance) — it is based on income before the birth, and conversion reduces it;
• the state pension — fewer Entgeltpunkte (pension points) are credited for years with Entgeltumwandlung.

It is worth knowing the scale in figures rather than in words. Only the contribution-free part is reduced, so at most 4 percent of the BBG — 338 euros a month. At maximum conversion you forgo about 0.08 Entgeltpunkte a year: 4,056 euros against average earnings of 51,944 euros. Over thirty years that is roughly 2.3 points, or about 100 euros of monthly state pension at a point value of 42.52 euros.

A hundred euros sounds substantial. But over those same thirty years around 140,000 euros in contributions, including the mandatory employer top-up, went into the contract, and the benefit from it far exceeds the hundred euros forgone. For the short-term benefits — Krankengeld, ALG I, Elterngeld — the effect runs to a few tens of euros anyway.

The downsides are real, but with a decent employer top-up they are outweighed by a wide margin. That is precisely why the size of the top-up is the decisive parameter, not whether a bAV exists at all.

Our assessment: why the mandatory 15 percent is too little

The 15 percent top-up is not a gift. The employer has to add 15 percent — less than he himself usually saves in social contributions on your Entgeltumwandlung (around 21 percent). He keeps the difference.

The spread in the market is enormous. In large corporations you find top-ups of 100 percent: you pay in 100 euros and the employer adds 100 of his own. There are collective agreements in which the employer pays a fixed contribution regardless of whether you convert part of your salary at all.

In our experience a bAV becomes worth serious consideration from a top-up of around 50 percent. If the employer gives only the statutory minimum the contract does not automatically become bad — the tax saving works there too. But then it has to be compared with simply investing the same money after tax, rather than signed by default. The difference between a 15 and a 50 percent top-up runs into tens of thousands of euros over thirty years, and that is the question to put to the employer before signing, not after.

What changed in 2026: the BRSG II

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. For employees the key points are:

• the thresholds for buying out small entitlements have been raised — the figures are above in the section on changing jobs;
• Optionssysteme (opt-out systems) — automatic enrolment in a bAV with the right to decline — are now also possible without a collective agreement; the employer top-up in such systems is 20 percent;
• joining an existing Sozialpartnermodell (social partner model) has been made easier for new participants;
• from 1 January 2027 support for low earners is widened: the state subsidy to the employer rises from 288 to 360 euros a year, and the income limit is tied to the BBG instead of staying fixed.

Payments to surviving dependants

Many bAV contracts also provide a payment to a widow, widower or children. It is never automatic; the conditions are set out in the employer’s Versorgungsordnung (pension scheme rules), and the restrictions there are often harsh: the marriage was concluded too late, it lasted less than a set period, the age gap between the spouses is too large.

Not every such restriction is lawful. How the Bundesarbeitsgericht (Federal Labour Court) draws the line between permissible and impermissible, and what the ruling of 10 March 2026 changed, we set out on the page about the widow’s pension in Germany.

Who benefits from a Betriebsrente and who does not

More likely worthwhile if your tax burden is high now and looks set to be markedly lower in retirement, if the employer adds more than the mandatory 15 percent, and if you are not planning to leave Germany soon.

Look more closely if your income is near a threshold beyond which you lose other entitlements, if you expect to rely on Grundsicherung (basic income support) in old age, or if you change employers often and your savings will be split across many small dormant contracts.

The most common mistake is to look only at today’s tax saving. You have to count the whole chain: the saving when paying in, the employer top-up, the return on the contract, the tax at payout and the contributions to the Krankenkasse (statutory health insurer). Those five figures determine the outcome.

Frequently asked questions

Can the employer refuse a bAV?

No. The right to Entgeltumwandlung is laid down in section 1a of the Betriebsrentengesetz; for collectively agreed pay it exists only if the collective agreement provides for or allows it. The employer chooses the Durchführungsweg and the provider, but cannot refuse the right itself.

What happens to the savings if the company goes bankrupt?

For most Durchführungswege there is the Pensions-Sicherungs-Verein, which takes over payments if the employer becomes insolvent. With a Direktversicherung or Pensionskasse the protection is structured differently, through the insurance contract itself.

Can the money be taken out before retirement?

As a rule no: payment starts at 62 at the earliest. The exception is small entitlements, which the employer may buy out in a single payment.

What happens if you leave Germany?

The contract does not lapse. If you move within the EU your savings remain and the payment arrives when you reach pension age. If you move outside the EU the terms depend on the Durchführungsweg and on the agreement with the country concerned — that needs to be checked separately.

How does a bAV fit together with Riester and Rürup?

These are independent schemes and can be combined. A Betriebsrente runs through the employer, the Riester-Rente through direct state subsidies, and Rürup through the tax deduction for the self-employed.