The company pension scheme (bAV) is much more than just a simple retirement element. It is a valuable tool that helps employees secure their financial future while making employers more attractive. With various implementation methods and tax advantages, the bAV offers a flexible and lucrative option for pension provision. The following chapters will explain the ways the bAV can be implemented and show how employees can benefit economically and tax-wise from their employer.
The Variety of Company Pension Schemes: A Deep Insight into Implementation Methods
The company pension scheme (bAV) in Germany not only provides security for old age but also an impressive range of possibilities that employers can leverage. This variety extends across different implementation methods, each with its own advantages and specific characteristics.
Let’s start with direct insurance. This is a pension insurance policy entered into by the employer for the employee. It offers flexibility, especially in the payment of contributions, and also allows for survivor protection. From a tax perspective, it is attractive as the contributions are exempt from taxes and social security contributions as long as they do not exceed certain maximum limits.
Also interesting is the pension fund, which is a pension entity created specifically for bAV purposes. Contributions are paid into a collective entity, which offers advantages and often cheaper contributions due to economies of scale.
Another important tool is the pension plan. As an innovative form of investment, it offers flexibility in the investment structure and the potential for higher returns. These contributions also remain exempt from taxes and social security contributions under certain conditions.
The support fund acts as a trustee that collects funds and pays out upon retirement, either in the form of pension or capital payment. It offers flexibility in payments, while the fifth rule might be attractive for capital payments due to its tax advantages.
In the direct promise, also known as pension promise, the employer personally commits to the future payment of benefits, usually covered by reinsurance policies. Here too, the fifth rule offers tax benefits for capital payments.
A more recent model, the social partnership model or the so-called Nahles income, provides interesting options for both employees and employers through contractual agreements. It combines flexible investment structures with collective insurance of a contractual nature.
In general, the financing of the bAV can occur through contributions from employers and/or employees, with the obligation since 2019 for an employer contribution of at least 15%. This provides an additional motivation for companies to proactively promote the bAV, as employers can partially benefit from social contribution savings, which are passed on to employees. Thanks to this variety of models, the bAV becomes a cornerstone of pension provision, offering a suitable solution for every need and corporate structure.
Maximum Benefits: Economic and Tax Incentives of the bAV for Employees
The company pension scheme (bAV) opens up numerous economic and tax advantages for employees in Germany that can significantly strengthen their pension provision beyond state pensions.
One of the main incentives of the bAV lies in its economic advantages. Particularly noteworthy is the employer contribution. Since 2019, employers are required to provide a contribution of at least 15% to their employees’ salary conversions. This directly contributes to strengthening the pension provision and means in clear terms: more pension income for employees. Moreover, the bAV is often used as a tool for employee retention. Through attractive bAV offers, companies position themselves as appealing employers in the competition for qualified talent.
Another decisive point is the flexibility of the bAV. Companies and employees can tailor solutions exactly to individual needs, making the bAV attractive for both recent graduates and experienced professionals. If capital benefits (VL) are invested in the bAV, this also occurs tax-free and exempt from social contributions, further accelerating wealth accumulation.
When considering the tax advantages, the appeal of the bAV becomes even more evident. Contributions to the bAV are exempt from taxes and social contributions up to a certain amount. For employees, this means a reduction in the current tax burden and an increase in the available space for wealth building. For 2024, the tax-free exemption limit is set at €3,624 per year. An additional advantage occurs at the time of payment during retirement age, as the tax burden is generally lower compared to active employment. Furthermore, the amounts accumulated during the accumulation phase are protected from garnishments and are not considered in citizen’s benefits, which can be a significant advantage for workers at risk of insolvency.
Additional advantages arise thanks to the portability of the bAV. In case of a job change, employees can take their bAV with them, which aligns with the flexibility of jobs in modern careers. Moreover, part of the company pension is not calculated for basic support in retirement age, providing further financial security. Modern bAV offers that include sustainable investments also provide financial and ecological incentives.
In summary, the bAV supports employees through a variety of measures that not only provide short-term financial relief but also ensure a solid long-term pension provision.