Company Pension Scheme (bAV)

Additional retirement provision through your employer.

What is a company pension scheme?

A company pension scheme (bAV) is additional retirement provision arising from the employment relationship and initiated by the employer. It can serve to provide security in old age and, depending on the commitment, also cover surviving dependents or reduced earning capacity. In practice, there are several implementation methods, such as direct insurance (Direktversicherung), a Pensionskasse or Pensionsfonds (two types of pension fund), a support fund (Unterstützungskasse), or a direct commitment (Direktzusage); depending on the model, the company pension is financed by the employer, through salary conversion, or through a combination of both.

Why do companies use this benefit?

Companies often use the company pension because it goes far beyond a one-off subsidy: it is a long-term benefit that can be integrated into existing compensation and benefit structures. Especially in roles or markets with a longer employment horizon, it fits well with the goal of stabilizing relationships with the company and structuring additional benefits in a transparent way. The fact that the company pension can be structured as a voluntary employer benefit and is at the same time a well-known part of supplementary retirement provision makes it easy to adopt in many organizations.

For employees, the company pension is often easy to understand because it is directly tied to the employment relationship. Those who use it build up an additional retirement provision component; in the case of salary conversion, there is in principle a statutory entitlement to this, although collective bargaining agreements can influence the structure. In many models, the employer contributes financially, which further increases the perceived relevance of the benefit.

From a company perspective, it is also practical that the company pension is not a one-size-fits-all model. It can be structured differently depending on the workforce, the compensation logic, and the desired level of administrative effort. At the same time, the German Federal Government shows that while company pensions are widespread in Germany, they are not yet used across the board, particularly in small and mid-sized companies. This is exactly where it can therefore be a deliberately chosen, structured benefit.

Benefits at a glance

Advantages for employers

A long-term benefit for retention and total compensation.
Can be structured flexibly through different models and implementation methods.
Can integrate employer contributions into the benefit portfolio in a visible and structured way.
Potential for digitalization and standardization in processes related to compensation and benefits.

Advantages for employees

An additional retirement provision component alongside statutory and private provision.
The option of salary conversion within the statutory framework.
Depending on the model, an employer contribution is possible or provided for.
When changing employers, the pension can be transferred in certain situations.

In practice

The company pension is used most often where benefits are deliberately structured and HR processes are already standardized. From current guidance by the Federal Government and the German Federal Ministry of Labour and Social Affairs (BMAS), it can be inferred that larger or more highly organized structures often integrate the company pension more easily, while small and mid-sized companies are increasingly adopting it but more frequently face organizational hurdles. For benefit advisors, it is therefore relevant above all when a company wants to build long-term benefits and embed them cleanly in HR and payroll processes.

What to keep in mind

The specific structure of a company pension depends, among other things, on the chosen implementation method, the collective bargaining framework, the financing, and the processes in payroll and administration. In the case of salary conversion, there can also be effects on social security contributions and later benefits; the BMAS points out, for example, that the entitlement to the statutory pension can be reduced through salary conversion and that benefits in the payout phase are treated differently than in the accumulation phase. Questions about employer contributions, transfers when changing employers, or organizational implementation should also not be answered in a blanket manner, but reviewed together with tax advisors, payroll, and, where applicable, other subject-matter experts.