bAV Germany – Betriebliche Altersvorsorge
(company pension scheme)
Germany has a three-pillar retirement system, and the bAV is part of the second pillar. The bAV refers to company pension schemes that employees can utilize to strengthen their pension contributions for retirement. However, while the bAV offers numerous advantages, it also has its fair share of disadvantages that you should consider to determine whether or not it is the right option for you.
Who is eligible to apply for Company Pension Schemes in Germany?
Though company pension schemes are not compulsory employees prefer to choose them due to their tax breaks and government subsidies.
- All types of employees can opt for the bAV
- From salaried employees, trainees, and wage earners to (non-) controlling share holder-managers of a GmBH
- Members of a corporation’s board of directors.
- Moreover, external persons, who work exclusively for one company, can be offered company pension schemes.
Which payout methods does bAV Germany provide?
- A full lump-sum payout: You will receive your entire saved retirement capital at one go.
- A partial lump-sum payout: You will receive a part of your saved capital – usually about 30%. The rest part is paid out in the form of a lifelong pension.
- A lifelong pension: Depending on your saved capital sum, you will receive a specific amount each month till the last day of your life.
A Quick Roundup of Betriebliche Altersvorsorge in Germany
(Company Pension Schemes Germany)
All employees in Germany can participate in company pension schemes. This allows you to convert part of your salary into pension contributions.
How does deferred compensation work?
You can ask your employer to convert a portion of your salary into a company pension scheme (that is, you can ask them to hold back part of your salary and put it into a company pension plan instead). Once you opt for a bAV, your employer is legally required to contribute up to 8% of your gross salary, with a maximum annual limit of €7,008.
Before taxes and social security contributions, 4% of your gross salary is deducted for the pension scheme. An additional 4% may also be deducted, which lowers your taxable income and reduces your tax and social security contributions.
what happens When you change jobs?
If you change jobs, you can take the accumulated savings from your company pension scheme with you. These schemes operate on principles similar to private pension insurances. Your employer selects an insurance provider to manage the investments.
employer contributions and bRSG Legislation
Under the BRSG (Occupational Pensions Strengthening Act), which took effect on January 1, 2018, your employer must contribute 15% of your pension scheme contributions due to savings from reduced social security contributions.
When you receive benefits from the pension scheme, whether during retirement or at another time, you will need to pay taxes and social security contributions. If you signed up for the pension scheme after 2012, you can claim benefits starting at age 62, or when you first claim your full German state pension.
effect on state pension
You should know that reducing your social security contributions for the company pension scheme will also lower your contributions to the mandatory German state pension, which may slightly reduce the amount of government pension you receive.
What is bAV explained simply?
The Betriebliche Altersvorsorge (bAV), or company pension scheme, is a vital component of Germany’s three-pillar retirement system. It provides employees with an opportunity to bolster their pension contributions for retirement. Essentially, the bAV allows individuals to save a portion of their salary into a pension scheme, which can then be accessed during retirement years. While the bAV offers numerous advantages such as tax breaks and government subsidies, it’s essential to understand its complexities and whether it aligns with your financial goals. For a comprehensive understanding of how bAV works and whether it’s the right choice for you, consider consulting MW Expat. Our expert advisors offer free and independent consultations tailored to your unique needs and circumstances.
Who pays out the company pension scheme?
The betriebliche Altersversorgung (bAV), or company pension scheme, is typically funded by both the employer and the employee. Employers are legally obligated to contribute to their employees’ bAV schemes, with the amount typically determined by the terms of the employment contract and regulatory requirements. Additionally, employees may choose to make voluntary contributions to their bAV schemes, further enhancing their retirement savings. Understanding the contribution dynamics of bAV is essential for individuals planning their retirement strategies. For expert guidance on optimizing your bAV contributions and maximizing your retirement income, MW Expat offers free and independent consultations tailored to your specific needs and circumstances.
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