Every employee in Germany subject to social insurance has a statutory right to build a company pension by converting salary (Entgeltumwandlung) — and once pension rights have vested, not even a termination agreement can take them away. Yet in our practice, the betriebliche Altersversorgung (bAV) is the single most overlooked asset in exit negotiations: employees fight over one month of severance while a pension pot worth tens of thousands of euros is left undocumented in the Aufhebungsvertrag. This article explains your conversion rights, the mandatory employer top-up, what vesting means, and exactly what happens to your bAV when the employment ends.
Your statutory right: Entgeltumwandlung (§ 1a BetrAVG)
You can require your employer to convert part of your gross salary into contributions to a company pension — the employer cannot refuse the „whether”, only shape the „how”. The ceiling is 4% of the contribution assessment threshold of the statutory pension insurance (Beitragsbemessungsgrenze, BBG). The BBG adjusts every January; for 2025 it stood at €96,600 per year, making the conversion ceiling €3,864 per year or €322 per month — check the current figure for the year in question. Up to that amount, converted salary is free of social-security contributions, and a higher amount (8% of the BBG) is income-tax-free in the most common implementation paths (§ 3 Nr. 63 EStG). These tax notes are informational only — the interplay with your individual situation belongs with a tax advisor.
The mandatory 15% employer subsidy
Since the Betriebsrentenstärkungsgesetz, employers must add a subsidy of 15% of the converted amount for new Entgeltumwandlung agreements — and since 2022 for old ones too — to the extent the employer saves social-security contributions through the conversion (§ 1a(1a) BetrAVG). If you convert €200 per month, the employer must generally add €30. Many employers pay more voluntarily; some pay nothing in breach of the statute. It is worth checking your payslip and pension statements: unpaid subsidies are back-payable, subject to limitation and any Ausschlussfrist in your contract — though case law protects core bAV entitlements from short cut-off clauses.
The five implementation paths
German law knows five vehicles (Durchführungswege). You do not choose freely — the employer decides the path — but you should know which one you have, because portability and insolvency protection differ:
- Direktversicherung — a life-insurance contract taken out by the employer for you. The most common path for Entgeltumwandlung.
- Pensionskasse — a regulated pension fund institution, often industry-wide.
- Pensionsfonds — a capital-market-oriented pension fund.
- Direktzusage — the employer itself promises the pension and pays from company assets. Common for executives.
- Unterstützungskasse — a support fund financed by the employer.
Vesting (Unverfallbarkeit): when the pension is truly yours
Two very different regimes apply:
Employer-funded contributions
Purely employer-financed pension promises vest by statute once the promise has existed for three years and you have reached age 21 at departure (§ 1b BetrAVG). Leave before that, and the employer-funded entitlement can lapse entirely — a point worth checking before agreeing to a termination date a few weeks short of the three-year mark.
Your own converted salary
Everything financed by Entgeltumwandlung — including the mandatory 15% subsidy — is vested immediately (§ 1b(5) BetrAVG). No waiting period. It is your money in deferred form.
What happens to your bAV when you leave
Termination does not destroy vested rights, but it does force a decision. Your options:
Dormant entitlement (beitragsfreie Fortführung)
The default: the contract is frozen, no further contributions flow, and at retirement you receive the pension earned so far. Watch out — ongoing administration costs in some older contracts can erode small dormant balances.
Continue paying privately
In the insurance-based paths you can usually take over the contract and continue it with your own contributions (§ 1b(5) BetrAVG), preserving conditions — sometimes valuable old guaranteed interest rates that no new contract would offer. Compare before you cancel anything.
Transfer to the new employer (portability, § 4 BetrAVG)
For Direktversicherung, Pensionskasse and Pensionsfonds you have a statutory right to transfer the accrued capital to your new employer’s scheme if you demand it within 15 months of leaving and the transfer value does not exceed the BBG. Old and new employer can also agree a transfer voluntarily (Deckungskapitalübertragung). Portability sounds tidy, but is not always financially wise — a new contract may carry fresh acquisition costs and worse guarantees. Take the pension statements to an independent advisor before transferring.
Insolvency protection: the PSV safety net
If the employer becomes insolvent, vested entitlements in the paths Direktzusage, Unterstützungskasse and (since 2022, partially) Pensionskasse, as well as Pensionsfonds, are protected by the Pensions-Sicherungs-Verein (PSV), which steps in and pays. Direktversicherungen are protected differently: where you hold an irrevocable beneficiary right, the insurer owes you directly regardless of the employer’s fate. If your employer is wobbling, establishing which protection regime applies to your contract is an urgent, answerable question.
Your bAV in exit negotiations
Points we routinely secure for employees in termination agreements and court settlements:
- Contributions through the last day — the employer must keep paying bAV contributions during the notice period, including garden leave; agreements that quietly stop them earlier cost you money.
- Confirmation of vested status and figures — a current Versorgungsausweis (pension statement) attached to the agreement.
- Near-miss vesting dates — where employer-funded rights vest in a few months, we push the termination date past the three-year mark or negotiate compensation for the lost entitlement.
- Severance structuring — part of a severance can sometimes be paid into the bAV with tax advantages (Vervielfältigungsregel, § 3 Nr. 63 EStG); whether that beats a cash payout is a question for your tax advisor, but the option should be on the table.
Never sign before these points are checked — see should I sign a termination agreement?
Worked example
An IT project manager in Bonn, gross salary €5,800/month, has converted €250/month into a Direktversicherung for 6 years; her employer adds the statutory 15% (€37.50/month). Total contributions to date: 72 × €287.50 = €20,700, with a current surrender value of roughly €19,400 and a projected retirement capital of €68,000 if continued. She also has a purely employer-funded Pensionskasse promise worth about €95/month at retirement — running for 2 years and 8 months.
The employer offers a termination agreement: €17,400 severance (0.5 monthly salaries × 6 years), termination in 6 weeks, full settlement clause, no word about the bAV. Our intervention: termination date moved 5 months later (to the end of the ordinary notice period) — which incidentally pushes the Pensionskasse promise past the 3-year vesting mark, preserving an entitlement actuarially worth roughly €14,000; bAV contributions continue through the final day (about €1,700 more into the Direktversicherung); express carve-out and release of the insurance contract for private continuation; severance raised to €26,100 (0.75 factor). Total improvement versus the first draft: roughly €24,000 — most of it from pension items the first draft simply ignored.
Frequently asked questions
Can my employer refuse Entgeltumwandlung?
No. Up to 4% of the BBG, § 1a BetrAVG gives you an enforceable right. The employer chooses the vehicle and may channel it through an existing scheme, but cannot refuse conversion altogether.
I leave after two years. Do I lose my company pension?
Not the part you financed by salary conversion — that is vested immediately, including the 15% subsidy. A purely employer-funded promise, however, vests only after 3 years (and age 21); leaving earlier can forfeit it, which is why termination dates near the vesting threshold deserve hard negotiation.
Can I just cash out my bAV when I leave?
Generally no. § 3 BetrAVG prohibits severance-style cash-outs of vested rights except for small amounts (below a monthly-pension threshold recalculated annually). The prohibition protects you — pension capital paid out early is usually taxed badly and spent quickly. A tax advisor can assess any payout offer you receive.
My new employer has a different pension scheme. Should I transfer?
You have a right to transfer within 15 months (§ 4 BetrAVG) in the insurance-based paths, but a transfer is not automatically wise: new contracts can mean new costs and lower guarantees. Get the guaranteed values of both contracts in writing and compare before deciding.
What happens to my bAV if my former employer goes bankrupt years from now?
Vested entitlements in Direktzusage, Unterstützungskasse and Pensionsfonds are covered by the PSV; Direktversicherungen with an irrevocable beneficiary right are claims against the insurer and unaffected by the employer’s insolvency. Identify your path now and file your pension statements safely.
The employer never paid the 15% subsidy. Can I claim it back?
Often yes, for the period since the statutory obligation applied to your agreement. Back claims meet limitation periods and sometimes contractual cut-off clauses, so raise the issue in writing early — and always before signing any settlement.