betriebliche Altersvorsorge (bAV) — Betriebsrente Explained Simply

What is betriebliche Altersvorsorge?

betriebliche Altersvorsorge (shorthand: bAV) is the second pillar of old-age provision in Germany — alongside the statutory pension (pillar 1) and private provision (pillar 3). In bAV, the employee saves for retirement through their employer. The major advantage: there are tax benefits and often an employer contribution.

Since 2002, every employee in Germany has a legal right to betriebliche Altersvorsorge through Entgeltumwandlung (§ 1a BetrAVG). This also applies to foreign employees with an employment contract in Germany.

How does Entgeltumwandlung work?

With Entgeltumwandlung (also called: salary conversion), you forego a portion of your gross salary. This amount is instead paid into a retirement savings contract. The advantage: the converted amount incurs lower taxes and lower social insurance contributions.

Example calculation (2026)

Result: You pay €200 into bAV, but your net salary only drops by approx. €110. You save the remaining €90 through lower taxes and social contributions. It's like a discount from the state.

Employer contribution — Mandatory since 2022

Since January 1, 2022, the employer must provide a contribution of at least 15% of the converted amount when Entgeltumwandlung is used — provided the employer saves social insurance contributions through the conversion (§ 1a Abs. 1a BetrAVG). This applies to all pension schemes.

Example:

• You convert €200/month
• Your employer pays at least €30/month (15% of €200)
• Total contribution: €230/month to your Betriebsrente
• Many employers voluntarily pay more (20–50% or even 100%)

Tip: Ask your employer about the specific contribution. Some companies offer more generous terms than the statutory minimum.

Tax-free allowances and limits (2026)

The tax-free and social insurance-free limits are based on the contribution assessment ceiling of the statutory pension insurance (West) and are adjusted annually.

The 5 pension schemes of bAV

There are five different ways to implement betriebliche Altersvorsorge. The employer chooses the pension scheme:

1. Direktversicherung (most common form)

• The employer concludes a life insurance policy on the employee's life
• Advantages: Simple, transparent, claims belong to the employee
• Disadvantages: Returns often low (guaranteed interest rate), limited flexibility
• Best for: Small and medium-sized enterprises

2. Pensionskasse

• Similar to Direktversicherung, but through a pension fund
• Advantages: Often higher returns than Direktversicherung
• Disadvantages: Less common, depends on industry
• Best for: Large enterprises and specific sectors (e.g., chemicals, metalwork)

3. Pensionsfonds

• Invests more strongly in stocks and other investment forms
• Advantages: Higher return potential
• Disadvantages: Higher risk, more complex
• Best for: Companies seeking higher returns

4. Unterstützungskasse

• External pension institution financed by the employer
• Advantages: No upper limit for tax-free contributions (§ 4d EStG)
• Disadvantages: No direct claim for the employee, insolvency protection via PSVaG
• Best for: Higher earners wanting to contribute more than the allowance

5. Direktzusage (Pension commitment)

• The employer pays the pension directly from their assets
• Advantages: Flexible design, no upper limit
• Disadvantages: Depends on employer solvency
• Best for: Managing directors and executives

What happens if you change jobs?

This is one of the most important questions — especially for foreigners who may change employers or leave Germany:

Portability (transferability)

• Direktversicherung and Pensionskasse: The contract can usually be transferred to a new employer or continued privately
• Pensionsfonds: Transfer is possible, but not guaranteed
• Unterstützungskasse and Direktzusage: Usually not transferable — the claim remains with the old employer

Vesting

Your claims from bAV are immediately vested if they are financed through Entgeltumwandlung. This means: even if you leave the company, you retain your claim.

For employer-financed commitments: claims become vested after 3 years of employment and from age 21.

Return to home country

If you leave Germany:

• Your bAV claims remain — you will receive the pension later
• Payment is made abroad (upon reaching retirement age)
• Early termination is generally not possible (unlike private pension insurance)
• In some cases, a settlement payment may be made if the monthly pension falls below a minimum amount

Payout — What do I receive in old age?

The Betriebsrente is paid from retirement age (currently 67) as either:

• Monthly pension (for life)
• Lump-sum capital payment (depending on contract)
• Mixed form (partial capital + pension)

Taxes and contributions on Betriebsrente

Important: The Betriebsrente is fully taxable in old age and health and long-term care insurance contributions apply:

• Income tax according to individual tax rate (usually lower in old age)
• Health insurance: full contribution rate (employee + employer share)
• Long-term care insurance: full contribution rate
• Since 2020, there is a tax-free allowance for Betriebsrente in health insurance (2026: approx. €176.75/month)

Tips for foreign employees

• Actively ask your employer about bAV — many foreigners don't know they have a legal right
• Utilize employer contribution: Take at least the 15% — better still if your employer pays more
• Use tax benefits: Through Entgeltumwandlung you save taxes and contributions
• Check transferability: Before changing jobs, clarify whether the contract can be transferred
• Combination: bAV supplements the statutory pension — combined with private provision (e.g., ETF savings plans), you create solid retirement security

As of: March 2026. All information without guarantee.