How big is the tax advantage of the German company pension?

Up to 8 % of the Rentenversicherung contribution ceiling (BBG-RV) is tax-free during the contribution phase. In 2026 that is €7,728/year (€96,600 × 8 %). At a personal marginal tax rate of 30 % a maximum contribution therefore saves around €2,300 of income tax per year.

How much is exempt from social security?

The SV-free ceiling sits at 4 % of BBG-RV — €3,864/year in 2026. Amounts above that face the full employee social-security rate of about 20 %, but remain tax-free up to 8 % of BBG-RV.

What is the mandatory 15 % employer pass-through?

Since the Betriebsrentenstärkungsgesetz (§1a Abs. 1a BetrAVG) the employer must add 15 % of the deferred salary as a top-up — compensating the social-security contributions saved on its side. For new contracts immediately, for existing contracts since January 2022.

Which form of bAV is the best?

Direct insurance, Pensionskasse and Pensionsfonds all live under §3 Nr. 63 EStG — tax treatment is identical. The differences are provider, guaranteed annuity factor (€ pension per €10,000 of capital) and investment strategy. Direct insurance is the most common option and its contracts are portable; Pensionskassen are often collectively organised. Always compare the guaranteed annuity factor.

Is the company pension taxed at payout?

Yes. Deferred taxation applies: at payout the company pension is taxed in full at the personal income-tax rate. Statutory health insurees additionally pay full health-insurance and long-term-care contributions on the part of the pension above the monthly allowance (€187.25 in 2026, §226 SGB V).

Is salary deferral worth it despite the double SV burden?

In most cases yes — especially with the 15 % employer pass-through and a high marginal tax rate during working life. It is less attractive for statutory-health-insured workers with a low personal income because health-insurance contributions in the payout phase can erode part of the tax saving. The calculator shows the net effect for your specific situation.

German Company Pension 2026: bAV Calculator, Tax & SV Savings and Employer Pass-through Explained

The German occupational pension scheme (betriebliche Altersversorgung, bAV) is — after the statutory pension — the second pillar of retirement provision in Germany. It is so generous in tax terms that even sceptics start running the numbers: up to €7,728/year tax-free, plus the mandatory 15 % employer pass-through. During the saving phase the contribution flows from gross salary straight into the contract. Our company pension calculator shows what reaches you in seconds.

Three roads into the bAV

The five formal routes of the bAV are listed in §1 BetrAVG. Three of them are practically relevant to employees — and all three operate under the same tax regime, §3 Nr. 63 EStG:

Form	Character	Typical providers
Direct insurance (Direktversicherung)	Life/pension contract with an insurer, written “for the employee”	Allianz, Alte Leipziger, Continentale
Pension fund (Pensionskasse)	Mutual insurance association, often a sector- or collective-bargaining vehicle	Höchster Pensionskasse, MetallRente, ChemiePensionsfonds
Salary deferral (Entgeltumwandlung)	Umbrella term: gross income converts into a bAV contribution — can use any of the three vehicles above	Employer-dependent

What differs: provider, guaranteed annuity factor (€ monthly pension per €10,000 of capital), investment strategy. What is identical: tax and SV treatment during the saving phase.

The two ceilings: 8 % and 4 %

The two key numbers for the German company pension are percentages of the Rentenversicherung contribution ceiling (BBG-RV West). In 2026 the BBG-RV is €96,600/year:

Tax-free ceiling: 8 % of BBG-RV = €7,728/year (€644/month) — no wage tax, no solidarity surcharge
SV-free ceiling: 4 % of BBG-RV = €3,864/year (€322/month) — no social-security contributions

Amounts between 4 % and 8 % stay tax-free but face SV contributions. Amounts above 8 % are subject to wage tax and SV like ordinary gross salary.

The 15 % employer pass-through (§1a Abs. 1a BetrAVG)

Since the Betriebsrentenstärkungsgesetz the employer must add a top-up of 15 % of the deferred salary — to compensate for the social-security contributions saved on its side. For contracts from 2019 onward immediately, for legacy contracts since 1 January 2022.

Example: you defer €200/month → the employer adds €30/month → €230/month flow into your bAV — for almost no change in your monthly net pay. Some employers voluntarily contribute much more (50–100 %) — under collective agreements that is often standard.

Worked example: tax and SV advantage in detail

Anna, 35, single, tax class I, gross salary €4,000/month. She defers €200/month into a direct insurance contract.

Own contribution: €200 × 12 = €2,400/year
Employer pass-through: €2,400 × 15 % = €360/year
Total contribution: €2,760/year — fully under both ceilings
Income-tax saving: at ~27 % marginal rate ≈ €650/year
SV saving: €2,760 × 20.45 % = €564/year
Net own outlay per month: €200 − (650 + 564) / 12 = ≈ €99

Anna pays roughly €99/month net — but €230/month land in her contract. The lever from tax + SV + employer pass-through is enormous.

Saving phase: building capital

The saving phase follows the standard mechanics of any investment: contribution × duration × return. Assuming a 3 % p.a. return, Anna’s contract by retirement at 67 (32 years) accumulates:

Total own contributions: €76,800
Total employer pass-through: €11,520
Capital at retirement: ≈ €144,000

Higher returns (e.g. unit-linked direct insurance with a 5 % equity return) easily double the figure. Replicating this privately means giving up the tax/SV advantage and the employer top-up — the decisive lever.

Payout phase: deferred taxation

What flows from gross during contribution is taxed at payout — the principle of deferred taxation. Three components in retirement:

Full income tax on the gross company pension at the personal tax rate in retirement
Health-insurance contribution (for statutory insurees) — 14.6 % + Zusatzbeitrag — on the pension above the monthly allowance of €187.25 (2026, §226 SGB V)
Long-term-care contribution (3.4 % or 4.0 % from age 23 without children) without an allowance

Unlike during contribution, the retiree pays the full GKV contribution alone (no employer share). This is the much-debated “double SV burden”. It reduces the advantage but the calculation almost always remains positive — primarily thanks to tax progression: the marginal rate in working life is usually well above the rate in retirement.

Annuity, lump sum or mix?

Many contracts let you choose at maturity: life-long monthly annuity, single lump-sum payout, or a mix (e.g. 30 % cash + remaining annuity). Tax-wise:

Monthly annuity: full income tax + GKV/PV (double SV burden)
Lump sum: spread over five years for tax purposes (Fünftelregelung) — often more attractive, but the full GKV/PV burden hits in the year of payout (spread over 10 years)

Tip: have a tax adviser run the numbers before deciding — the right answer depends on your other taxable income and your GKV status.

Common mistakes

Confusing Riester and bAV — Riester is private, bAV runs through the employer. Both are subsidised but in different ways.
Paying in above 8 % BBG-RV — amounts above are tax-uninteresting. For more, look at Riester or Rürup.
Cancelling on a job change — bAV is portable. Transferring to the new employer’s contract or going premium-free beats winding it up.
Forgetting the employer top-up — many employers stick to the mandatory 15 %; voluntarily increasing it is worth negotiating.
Accepting low annuity factors — some contracts use 25 €/€10,000 (= 0.25 % factor), others 35. On €100,000 of capital that is €100/month difference — for life.

Tips for optimisation

Ask your employer first — some pay 50 % or 100 % top-up, particularly in collectively bargained sectors.
Consider a unit-linked option — higher return potential than classic guarantee products; over a long horizon almost always advantageous.
Combine with other vehicles — bAV closes only part of the pension gap. Use the retirement-gap calculator and an ETF savings plan.
Plan ahead of retirement — annuity or lump sum? A mix may be optimal in tax terms.
Check the gross/net effect — the gross-net calculator shows how salary deferral changes your monthly net.

Other useful calculators

Company Pension Calculator — bAV payout, tax and SV advantage at a glance
Rürup Pension Calculator — base pension and special-expenses deduction
Riester Pension Calculator — allowances and subsidies
Retirement Gap Calculator — total pension shortfall
Gross-Net Calculator — effect of salary deferral on net pay
Social Security Calculator — GKV/PV in the payout phase