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bAV Germany – Betriebliche Altersvorsorge

(company pension scheme)

Germany has a three-pillar retirement system with the Bav is part of the second pillar. The bAV refers to company pension schemes that employees can utilise to strengthen their pension contributions for retirement. However, while the bAV offers numerous advantages it has its fair share of disadvantages too that would help you understand whether or not you should opt for the bAV.

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.

couple reading papers, BAV
Filling Company Pension Scheme Form

Which payout methods does bAV Germany provide?

A Quick Roundup of Betriebliche Altersvorsorge in Germany
(Company Pension Schemes Germany)

  • All employees are eligible to contribute to a company pension scheme.
  • As an employee, you can ask your employer not to pay out your salary’s part but instead have it converted into one of the company pension schemes (also known as “deferred compensation”). Once you opt for a bAV, your employer becomes legally obliged to convert up to 8% of your gross salary (up to a maximum annual limit of €7008) to  be utilized as direct payments into the company pension scheme.
  • Before you pay taxes and make social security contributions, 4% of your gross salary is deducted. An additional 4% may also be further deducted before you pay taxes. This additional deduction essentially reduces your income, which means the amount you need to pay toward tax and social security contributions also gets lowered.
  • Whenever you switch a job, you are allowed to take your savings, which you have accumulated in the company pension scheme, with you.
  • Occupational pension schemes operate following the same principles as those of private pension insurances.
  • Your employer is allowed to choose an insurance provider to manage the investment responsibilities associated with the bAV.
  • Due to the new legislation namely the BRSG (Occupational Pensions Strengthening Act) that came into effect on January 1, 2018, now your employer has to contribute 15% of your contribution to the bAV. This is because of the savings your employer has enjoyed in the form of its social security contributions.
  • Whenever you receive the benefits (during retirement or any other time), you will need to bear tax and social security liabilities.
  • If you signed the contract for the bAV after 2012, at the earliest you can claim the benefits is the age of 62. However, usually, it is to be taken at the time when you claim your full Pubic Retirement Insurance (German state pension) for the first time.
  • Note that, when you lower your social security contributions, your contribution to the mandatory German state pension also gets lowered. It means the pension you will receive from this government-run system will be slightly reduced.7

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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