The Direktversicherung is the most common route to a company pension in Germany. The employer signs the contract, contributions come out of gross salary, and the whole thing is arranged in one conversation with HR. The questions come at the end: when the money is paid out, contributions to the Krankenkasse (statutory health insurer) are deducted from it. Here is how much, why it runs for ten years, and who pays nothing at all.
What is a Direktversicherung
It is a life or pension insurance contract that the employer takes out on the employee and for the employee’s benefit. The policyholder is the company; the insured person and beneficiary is the employee. Legally it is one of the five routes of the company pension (Betriebsrente), and the simplest of them: the company has nothing to administer beyond transferring the contributions.
The money can come from three sources, and they can be combined:
- Entgeltumwandlung — part of the employee’s gross salary;
- employer contributions — on top of salary, voluntarily or under a collective agreement;
- the mandatory employer top-up of 15 percent on the amount the employee converts himself — the employer has to add it, because he saves on social contributions.
The contract stays yours when you change jobs: you can leave it dormant, continue it privately, or transfer it to a new employer. Details on the company’s obligations are on the page bAV for employers.
How much you can pay in during 2026
The limits are tied to the pension insurance contribution ceiling, which in 2026 is 101,400 euros a year:
- 8,112 euros a year — 8 percent of the ceiling — are free of income tax;
- 4,056 euros a year — 4 percent of the ceiling — are also free of social contributions.
So up to 338 euros a month go into the contract entirely free of tax and social contributions, and the next 338 euros free of tax but subject to social contributions. This is § 3 no. 63 of the Income Tax Act.
What is deducted from the payout
This is where the biggest misunderstanding lies. You paid no contributions — neither health nor long-term care. The state did not waive those contributions, it deferred them: they are taken at the end, out of the payout. This has applied since 2004, when lump-sum payments were put on a par with company pensions.
For a lump-sum payment the mechanics are:
- the amount is divided by 120 months;
- the result counts as your monthly company pension;
- contributions are charged on it for ten years in a row, even if you received the money once and spent it immediately.
The same figure works differently in health and in long-term care insurance
This is the detail people get wrong most often, and it costs real money.
- Health insurance. A Freibetrag applies — in 2026 it is 197.75 euros a month. It is deducted: contributions are charged only on the excess. 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. The rate is 14.6 per cent plus the Krankenkasse’s supplementary rate, 2.9 per cent on average, about 17.5 in total.
- Long-term care insurance. Here the same figure works differently — it is not a deduction but a threshold. If the monthly amount does not exceed it, no contributions are due at all; if it exceeds it by even one euro, the contribution is charged on the entire amount, not just on the excess. The rate is 3.6 percent, 4.2 percent for the childless.
Both examples below assume you are compulsorily insured or a pensioner in the KVdR. On a payout of 60,000 euros that gives 500 euros of notional monthly pension, about 53 euros of Krankenkasse contribution and another 18 for care — 71 euros a month for ten years, that is roughly 8,500 euros, or 14 percent of the whole payout.
A payout of up to 23,730 euros, by contrast, produces a monthly figure no higher than the threshold — and then nothing is charged at all, neither health nor care. The threshold is hard: at a payout of 23,730 euros the deductions are zero, while at 24,000 euros 39 cents a month go to the Krankenkasse but 7.20 euros go to care straight away, on the full amount — 911 euros over ten years, against zero on a payout just 270 euros smaller.
We calculate health and long-term care contributions on a lump-sum payout under the 2026 rules. Income tax is not included: it depends on all your income in the year of payout and is best worked out with a tax adviser.
The calculation is indicative. The 197.75 euro allowance is one twentieth of the 2026 reference figure (3,955 euros); it is revised every year and will rise over ten years, so the actual deduction will be somewhat lower. It applies only to compulsorily insured members, including those in the KVdR; voluntarily insured members pay on the full amount, and the calculator has a separate option for them. Contributions are only charged on income up to the Beitragsbemessungsgrenze (contribution ceiling): in 2026 that is 5,812.50 euros a month. If your other income is already above it, no contributions are due on the payout; if it is below, only on the part up to the ceiling. The Krankenkasse’s supplementary rate is taken at the national average of 2.9 per cent; your own Krankenkasse may differ. In long-term care insurance the 197.75 euros are not an allowance but a threshold: below it nothing is charged, above it the contribution is due on the full amount. Other company pensions are not taken into account: the allowance is granted once for all pension benefits together. Privately insured people pay no contributions on the payout. Income tax is not calculated here.
Monthly pension or lump sum
The contract usually gives you a choice: a lifelong monthly pension or the whole sum at once. The answer is not a matter of taste but of arithmetic.
Lifelong pension. Contributions are charged on the pension itself, and if you are compulsorily insured or a pensioner in the KVdR, the 197.75 euro allowance is deducted every month — not for ten years but permanently. With a small pension that means almost no Krankenkasse contributions. The downside: the money comes slowly, and on early death the remainder is usually not inherited unless a guarantee period was agreed.
Lump sum. The money is available at once and can be inherited. But contributions are calculated under the 120-month rule, and income tax in a single year can be noticeably higher than tax on a pension spread over twenty years.
The rule of thumb is simple: the smaller the sum, the better the pension option looks on contributions; the larger it is, the more the tax calculation matters. Both options should be calculated with your own figures before you sign the application: the decision cannot be reversed.
Private health insurance: the payout arrives in full
Only the statutory Krankenkasse charges contributions on company pensions. If at the time of payout you are insured privately (PKV), there are no deductions at all — neither health nor care. On a payout of 60,000 euros the difference is exactly those 8,500 euros.
That is no reason to switch insurance for the sake of the payout: moving to PKV is decided on entirely different grounds and is nearly impossible at an older age. But if you are privately insured anyway, it is worth knowing — as are the rules of the statutory Krankenkasse, if you are a member.
Contracts concluded before 2005
Old contracts follow a different regime. Before 2005, contributions to a Direktversicherung were usually taxed at a flat rate as they were paid rather than exempted — and the payout rules for such contracts differ from today’s.
Krankenkasse contributions are charged on them just as on new contracts: since 2004 lump-sum payments have been treated as company pensions regardless of when the contract was signed. The tax side of old contracts, however, is assessed individually, based on your contract and the year it was concluded. This is not a case where an article on the internet should guide you: a difference of a few months changes the result.
Terminating the contract early
The law does not allow you to terminate a Direktversicherung outright and take the money while you are still working. This is the explicit ban on commutation in § 3 of the Company Pensions Act (BetrAVG): the money is intended for old age and protected against early access. Courts have made exceptions only in cases of extreme hardship, and those are isolated cases, not a workable route.
What is available in practice is suspending contributions (Beitragsfreistellung): the contract is frozen, what has been accumulated stays and keeps working, no new contributions go in.
That is a sensible move if paying becomes temporarily difficult. Breaking the contract for money “now” is almost never worth it: you lose the guarantees, the interest credited, and the tax advantage that was the whole point.
Tax on payout
A payout from a Direktversicherung is taxable income. The contributions went in untaxed from gross salary, so the tax is taken at the end: this is the principle of deferred taxation that applies across the entire German pension system.
Exactly how much depends on the size of the payout, your other income that year, and whether you take a pension or the whole sum. The general mechanics of pension taxation are covered in a separate article on taxes on pensions in Germany, and the specific amount is worked out by a tax adviser from your return.
Frequently asked questions
Contributions are deducted for ten years — what if I die sooner?
The contributions are tied to the recipient of the payout and their membership of the Krankenkasse. The obligation ends with death; no contributions are charged for the remaining months.
If I have two company pensions, does the allowance double?
No. The 197.75 euro allowance is granted once for all company pensions together, not for each one.
What happens to the contract if the company goes insolvent?
The contract is with the insurance company, not with the firm, and remains in force. Whatever has been accumulated by the time of insolvency belongs to you.
Can the contract be transferred to a new employer?
Yes: within a year of leaving, you can demand the transfer, and no consent is needed (for a transfer value of up to 101,400 euros in 2026). The alternatives: leave the contract without new contributions, or keep paying into it yourself out of net income.
Does Entgeltumwandlung reduce the future state pension?
Yes, slightly: no pension insurance contributions are paid on the converted amount, so fewer pension points are credited. For the same reason sick pay, unemployment benefit and Elterngeld (parental allowance) come out marginally lower. The advantage usually outweighs this, but it should be calculated on your own figures.
Sources
- § 3 no. 63 EStG — tax exemption of contributions, 8 percent of the contribution ceiling
- § 229 and § 226 SGB V — pension benefits as contributory income, the allowance and the 120-month rule
- GKV-Spitzenverband and AOK — social insurance reference figures for 2026
- Techniker Krankenkasse — the allowance from 1 January 2026 and the threshold rule in long-term care insurance
- § 3 BetrAVG — ban on early commutation of company pensions
