Company pension/private provision

An additional old-age provision through the company can pay off. The employer often participates in the establishment of a company pension or even finances it entirely. And if you pay your own contributions to a company pension scheme, the state provides considerable support. Up to a certain annual ceiling, you can even pay your contributions directly from your gross salary, untaxed and free of social security contributions.

Company pensions have a long tradition in German companies.For a long time, they were voluntary additional benefits provided by employers. Today, as an employee, you are generally entitled to a company pension. This means: Your employer must use a certain amount from your gross salary as a contribution to a company pension scheme (deferred compensation) – if you want this and if there are no regulations in collective agreements to the contrary.

However, the contributions to the occupational pension scheme can also be paid in full or in part by your employer or – in other cases – come from your net pay.

Please note:
If you are paid according to a collective agreement, deferred compensation can only be paid if the collective agreement expressly provides for or permits this. A collective agreement can even regulate the details of the pension plan.

In any case, your employer organises and implements the occupational pension scheme. He selects the form of investment, takes care of the contribution payments and is the contractual partner for the selected provider or financial service provider. How this is done in detail is often agreed at company level or is laid down in the collective agreement.

Until now, employers have not been obliged to contribute financially to the establishment of an employee’s occupational pension. Your employer may possibly be obliged to do so through a collective agreement or your company may participate voluntarily. However, regardless of whether you pay the contribution for your occupational pension alone or your employer participates, only you as an employee are entitled to the later pension payment in any case. In the future, employers will be obliged to pay at least a 15 per cent subsidy on the salary components converted into old-age provision. If the employers’ association and the labour union have agreed on this for the respective industry, this will already apply in 2018, otherwise for new contracts only from 2019 and for old contracts only from 2022.

The most important advantages of the occupational pension are summarised below:

  • You do not have to worry about the implementation and the associated formalities. Your employer takes care of this. He also pays the contributions for you.
  • The administration and acquisition costs are sometimes cheaper than with private pensions because they are spread over a larger group of people or your employer receives a bulk discount from the provider. There may also be tariffs specially tailored to the company with lower administrative costs.
  • Many employers are willing or even obliged by collective agreement to support their employees in setting up a company pension scheme.
  • In the case of collectively agreed models, the benefits can be specifically tailored to the respective occupational risks.
  • You can use several funding channels side by side.
  • If the occupational pension is accrued through contributions taken directly from your gross salary (deferred compensation), these contributions remain tax and contribution-free. However, due to the exemption from social security contributions, your entitlements to the statutory pension (and also, for example, to unemployment insurance) will be correspondingly lower.

Occupational pension schemes also offer advantages for employers. For example, it plays an important role in attracting and retaining employees. Employers can offer their employees a financially attractive supplementary offer with the company pension and deduct their expenses against tax. The employer also benefits from the exemption from social security contributions.

If the employer agrees to pay between EUR 240 and EUR 480 a year into the occupational pension scheme for employees with a gross monthly income of up to EUR 2,200, he can be reimbursed by the tax office for up to 30 percent of the amount paid in per employee.

(Text taken from Deutsche Rentenversicherung [German Pension Insurance])