Occupational Pension Schemes
Betriebliche Altersvorsorge
Coverage
Voluntary participation
- Private sector employees; plans provided by employer, often based on collective agreement.
- If no plan is provided by employer and permitted by collective agreement, employee can request to convert portion of earnings into company’s pension plan (‘deferred compensation’).
- Possibility for automatic enrolment with ‘silent consent’ of employee (= optional system); silent consent can be revoked under certain conditions; restricted to plans based on collective agreement.
Financing
General finances
- Fully funded schemes financed by contribution payments and capital revenues.
Contribution rates
- Contributions can be paid by employer or shared between employee and employer.
- Conversion of earnings model: employee entitled to pay a max. of 4%* as direct insurance (if not agreed otherwise and no alternative plans provided by employer); low annual minimum contribution required; since 2019, employer has been obliged to pay additional contribution amounting to 15% of employee’s converted earnings, if conversion entails savings in social security contributions for employer; several exceptions apply (e.g. modifications based on collective agreements with social partners).
- Externally implemented pension plans: employee can request to continue insurance payments on individual basis after leaving company.
State support & incentivising strategies
- For low income groups (with monthly gross income < EUR 2,200): federal state allowance of 30% of employer’s contributions (of a predefined range), if employer pays annual contributions of at least EUR 240 (only for plans with external implementation).
- Internally organised pension plans: contribution payments are fully tax-exempted and (fully/partially) exempted from social security contributions (full exemption for employer’s contributions; max. of 4%* for employee’s contributions).
- Externally implemented pension plans: contribution payments of employer/employee exempted from tax (max. of 8%*) and social security contribution (max. of 4%*).
- Under specific circumstances, scheme qualifies for private, state-subsidised Riester pension (e.g. requires external implementation paths; contributions based on net income).
*of contribution assessment ceiling of statutory old age pension scheme
Administration
- Different types of pension plans can be offered by employer; pension plans either organised internally (Direktzusage, Unterstützungskasse) or implemented by external institutions (Direktversicherung, Pensionskasse, Pensionsfonds).
- Employer mainly responsible for the fulfilment of the pension plan promise, even if implementation is carried out by external pension institutions; no employer liability in case of pure defined contribution plan based on collective agreements between employer and trade unions (social partnership model).
- Externally implemented pension plans monitored by the ‘Federal Institute for Financial Services Supervision’ (BAFin).
- The ‘Pension Security Association (PSVaG)’ protects internal pension plans and pension funds (Pensionsfonds) from insolvency of employers and investment risks.
Qualifying Conditions
- Employee entitled to occupational pension benefits when claiming full old age pension from the statutory old age pension scheme; no minimum retirement age specified in law.
- Conditions are regulated in pension regulations at company or collective level.
Benefits
Pension payments
- Monthly life-long annuity or one-time lump sum payment (exception: pension funds only paid as life-long annuity or according to payment plan).
- Dependent on payment commitment: often ‘defined benefit’ (DB) or ‘defined contribution’ (DC) with a guarantee of a minimum investment return (only for externally implemented plans); since 2018 ‘pure defined contribution’ with no minimum benefit or interest guarantees permitted (restricted to social partnership model); DC pensions highly depend on successful investment returns.
Taxation and social security contributions
- Payments are subject to income tax; tax rate depends on the total income (from all sources).
- Pension payments (> EUR 159.25, adjusted yearly) are subject to mandatory health insurance; pension payments (if exceeding min. amount) are fully subject to long-term care insurance (paid in full by retired person).
Coverage
Financing
Administration
Qualifying Conditions
Benefits
Voluntary participation
- Private sector employees; plans provided by employer, often based on collective agreement.
- If no plan is provided by employer and permitted by collective agreement, employee can request to convert portion of earnings into company’s pension plan (‘deferred compensation’).
- Possibility for automatic enrolment with ‘silent consent’ of employee (= optional system); silent consent can be revoked under certain conditions; restricted to plans based on collective agreement.
General finances
- Fully funded schemes financed by contribution payments and capital revenues.
Contribution rates
- Contributions can be paid by employer or shared between employee and employer.
- Conversion of earnings model: employee entitled to pay a max. of 4%* as direct insurance (if not agreed otherwise and no alternative plans provided by employer); low annual minimum contribution required; since 2019, employer has been obliged to pay additional contribution amounting to 15% of employee’s converted earnings, if conversion entails savings in social security contributions for employer; several exceptions apply (e.g. modifications based on collective agreements with social partners).
- Externally implemented pension plans: employee can request to continue insurance payments on individual basis after leaving company.
State support & incentivising strategies
- For low income groups (with monthly gross income < EUR 2,200): federal state allowance of 30% of employer’s contributions (of a predefined range), if employer pays annual contributions of at least EUR 240 (only for plans with external implementation).
- Internally organised pension plans: contribution payments are fully tax-exempted and (fully/partially) exempted from social security contributions (full exemption for employer’s contributions; max. of 4%* for employee’s contributions).
- Externally implemented pension plans: contribution payments of employer/employee exempted from tax (max. of 8%*) and social security contribution (max. of 4%*).
- Under specific circumstances, scheme qualifies for private, state-subsidised Riester pension (e.g. requires external implementation paths; contributions based on net income).
*of contribution assessment ceiling of statutory old age pension scheme
- Different types of pension plans can be offered by employer; pension plans either organised internally (Direktzusage, Unterstützungskasse) or implemented by external institutions (Direktversicherung, Pensionskasse, Pensionsfonds).
- Employer mainly responsible for the fulfilment of the pension plan promise, even if implementation is carried out by external pension institutions; no employer liability in case of pure defined contribution plan based on collective agreements between employer and trade unions (social partnership model).
- Externally implemented pension plans monitored by the ‘Federal Institute for Financial Services Supervision’ (BAFin).
- The ‘Pension Security Association (PSVaG)’ protects internal pension plans and pension funds (Pensionsfonds) from insolvency of employers and investment risks.
- Employee entitled to occupational pension benefits when claiming full old age pension from the statutory old age pension scheme; no minimum retirement age specified in law.
- Conditions are regulated in pension regulations at company or collective level.
Pension payments
- Monthly life-long annuity or one-time lump sum payment (exception: pension funds only paid as life-long annuity or according to payment plan).
- Dependent on payment commitment: often ‘defined benefit’ (DB) or ‘defined contribution’ (DC) with a guarantee of a minimum investment return (only for externally implemented plans); since 2018 ‘pure defined contribution’ with no minimum benefit or interest guarantees permitted (restricted to social partnership model); DC pensions highly depend on successful investment returns.
Taxation and social security contributions
- Payments are subject to income tax; tax rate depends on the total income (from all sources).
- Pension payments (> EUR 159.25, adjusted yearly) are subject to mandatory health insurance; pension payments (if exceeding min. amount) are fully subject to long-term care insurance (paid in full by retired person).
Legal Basis: Occupational Pensions Act (Betriebsrentengesetz); Act to Strengthen Company Pensions (Betriebsrentenstärkungsgesetz); Retirement Savings Act (Altersvermögensgesetz); Income Tax Act (Einkommensteuergesetz); Retirement Income Act (Alterseinkünftegesetz); Insurance Supervision Act (Versicherungsaufsichtsgesetz); Occupational Pension Allowance Act (Betriebsrentenfreibetragsgesetz).