Whether it's a good deal depends mostly on two things: how much your employer adds, and how good the contract itself is. Let's go through both.
The short answer
- You have a legal right to put up to 4% of the pension contribution ceiling into a workplace pension: €4,056 a year in 2026, about €338 a month. 1
- If your employer saves social contributions because of your conversion, it has to add 15%. 1
- Contributions to a direct insurance, pension fund or Pensionskasse are tax-free up to 8% of the ceiling (€8,112 in 2026) and free of social contributions up to 4%. 23
- The pension is usually taxed when it's paid out. 4
- What you built from your own salary stays yours when you change jobs. 5
Less net pay now, a pension later
Part of your gross salary goes into a pension contract before tax and social contributions come off. You give up a little net salary today in exchange for a pension later. The state supports this by not taxing the contribution now. It taxes the pension later instead.
Basic provision
Statutory pension (gesetzliche Rente) and the Rürup pension (Basisrente).
Supplementary provision
Workplace pensions (bAV), Riester and, from 2027, the Altersvorsorgedepot.
Private savings
Your own investments, for example an ordinary ETF depot. No special tax treatment, full access.
Meet Lena (she's hypothetical)
Lena earns a regular salary and puts €200 a month of gross pay into a direct insurance (Direktversicherung). Her employer saves social contributions on that €200, so it adds 15%, which is €30. 1 That means €230 a month goes into her pension contract.
Because €200 is below the 4% limit, it's free of tax and social contributions. Her net salary drops by less than €200. How much less depends on her tax class and income. The trade-off: her state pension entitlement grows a little slower, because she pays less into the state pension on that part of her salary. And the payouts are taxed later.
Want the nerdy details?The rules, the exact numbers and the edge cases. Open it whenever you're curious.- The 2026 limits in one table
- Five ways your employer can set it up
The 2026 limits in one table
All the limits are percentages of the contribution ceiling of the general pension insurance, which is €101,400 a year in 2026. 6
| Rule | Percentage | 2026 amount per year | Per month |
|---|---|---|---|
| Right to salary conversion | 4% | €4,056 | €338 |
| Free of social contributions | 4% | €4,056 | €338 |
| Free of tax (direct insurance, pension fund, Pensionskasse) | 8% | €8,112 | €676 |
Contributions between €338 and €676 a month can be tax-free and still be subject to social contributions. 123
Five ways your employer can set it up
German law knows several routes (Durchführungswege). 5
- Direct insurance (Direktversicherung): a life insurance contract the employer takes out for you.
- Pensionskasse and pension fund (Pensionsfonds): separate pension institutions that give you a legal claim.
- Support fund (Unterstützungskasse): an institution that formally grants no legal claim. The employer stays responsible.
- Direct commitment (Direktzusage): the employer promises the pension itself.
Your employer usually decides which route it offers.
New job, or new country?
Changing jobs. Entitlements from your own salary conversion stay yours when you leave. 5 Employer-funded entitlements stay yours if you leave after your 21st birthday and the commitment has existed for at least three years. 5
Leaving Germany. Your entitlement doesn't disappear when you move. How and where it's paid, and how it's taxed, depends on the contract, the provider and the tax rules of your new country. Ask the provider before you move.
Where people slip up with a bAV
Not asking about the employer subsidy. The legal minimum is 15% when your employer saves contributions. Some employers add more. Ask.
Looking only at the tax saving. A tax break doesn't fix an expensive contract. Check the costs and what return the contract can realistically earn.
Forgetting about the payout years. Pensions from a bAV are generally taxable, and health and care insurance contributions can apply in retirement.
Questions about workplace pensions
Can my employer refuse a bAV?
You have a legal right to convert salary into a workplace pension, up to 4% of the ceiling. The employer can choose the provider and the route. 1
Can I get the money out early?
Usually not. A bAV is built for retirement.
Is a bAV better than an ETF savings plan?
They do different jobs. A bAV gives you tax and contribution advantages now, with restrictions and taxed payouts later. An ETF depot gives you full access and flexibility, without those advantages. Many people use both.
So, should you say yes?
Start with two questions for your employer: what do you offer, and how much do you add? Then look at the contract's costs, check what you keep if you change jobs, and remember that the pension is taxed later.
Check yourself
Paying into a bAV from your salary usually means…
Video lesson · In the makingWorkplace pensions (bAV)
Official sources
- § 1a BetrAVG: right to salary conversion and 15% employer subsidy
- § 3 EStG, no. 63: tax-free contributions up to 8% of the ceiling
- § 1 SvEV: contributions up to 4% not counted as wages for social insurance
- § 22 EStG, no. 5: payouts from pension funds, Pensionskassen and direct insurance are taxable income
- § 1b BetrAVG: vesting rules and the different routes
- Deutsche Rentenversicherung: social-insurance values for 2026 (ceiling €101,400)
Last checked:
We explain how the German rules work in general. This isn't personal financial, tax or legal advice. Investments can lose value.