Betriebliche Altersvorsorge- bAV
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.
Persons Eligible to Apply For Company Pension Schemes
Though company pension schemes are not compulsory employees prefer to choose them due to their tax breaks and government subsidies.
You may choose to receive the money you saved in any of these forms:
A Quick Roundup of Company Pension Schemes
- 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