What are employment-based retirement plans?



Amount that each employee is eli­gi­ble to use for “Ent­gelt­um­wand­lung” [1]

Employ­ment-based reti­re­ment plans is a collec­tive term for all finan­ci­al bene­fits that an employ­er can pro­vi­de to his employees for pen­si­ons, survivor’s bene­fits in the event of death or inva­li­di­ty bene­fits.

Nobo­dy denies the fact that the pen­si­on pro­vi­ded by the public reti­re­ment plan will no lon­ger be suf­fi­ci­ent to main­tain the stan­dard of living during reti­re­ment. The main rea­son for that is the demo­gra­phic chan­ge. That means that more and more older peop­le recei­ve a public pen­si­on and fewer and fewer youn­ger peop­le pay for said pen­si­ons.

By 2030, the ratio of pen­sio­ners to con­tri­bu­tors will be 1: 1. This means that every sin­gle employee must finan­ce one reti­ree.

In order to enab­le peop­le to main­tain a high and secu­re stan­dard of living in old age, the sta­te pro­vi­des a “three-tier model” (form­er­ly a three-pil­lar model) for reti­re­ment plans:

Tier 1: Basic pension(including the public reti­re­ment plan)

Tier 2: Sup­ple­men­ta­ry pen­si­on (inclu­ding employ­ment-based reti­re­ment plans and “Ries­ter pen­si­on”)

Tier 3: Invest­ment pro­duc­ts (inclu­ding life insuran­ces and annui­ty insuran­ces)

Basics of employment-based retirement plans

Every employee that pays the regu­lar soci­al secu­ri­ty taxes is eli­gi­ble to invest in employ­ment-based reti­re­ment plans through some­thing cal­led “Ent­gelt­um­wand­lung”. It means that parts of your sala­ry will auto­ma­ti­cal­ly be paid into a reti­re­ment plan.

Other varia­ti­on do not have to be sup­por­ted by the employ­er. Howe­ver, sin­ce the employ­er also has advan­ta­ges, many com­pa­nies deci­de to offer such a plan in one way or ano­t­her.

The­re are five types of employ­ment-based reti­re­ment plans that are sub­si­di­sed by the government:

Direct insuran­ce: The employ­er takes out an insuran­ce for and on the employee’s name and direc­t­ly pays the pre­mi­ums from the wage into the plan.

Pen­si­on plan: The employ­er pays the pre­mi­um into an inde­pen­dent pen­si­on plan, which mana­ges the funds and gua­ran­tees the employee a pen­si­on.

Pen­si­on fund: Very simi­lar to the pen­si­on plan, but the pre­mi­ums are pri­ma­ri­ly invested in funds.

Direct/pension pledge: The employ­er pays the employee an agreed bene­fit upon reti­re­ment, usual­ly in the form of a pen­si­on or a one-off pay­ment.

Bene­fit fund: The employ­er is the bea­rer or part of a legal­ly inde­pen­dent insti­tu­ti­on that takes care of pen­si­on pro­vi­si­on and deduc­ts the con­tri­bu­ti­ons direc­t­ly.

The con­tri­bu­ti­ons can be paid in three ways:

The employ­er pays the ent­i­re pre­mi­um.

The employee con­verts parts of his gross sala­ry and thus the pre­mi­um are paid (the above-men­tio­ned “Ent­gelt­um­wand­lung”). The employ­er can sub­s­idy the employee.

Employees and employ­ers sha­re the cost of the pre­mi­ums.


Dis­tri­bu­ti­on of funds, total amount: 593,8€ bil­li­on.  [2]

Direct/pension pledge 50%
Pen­si­on plan 27%
Direct insuran­ce 10.7%
Bene­fit fund 6.3%
Pen­si­on fund 6%
Who should get an employment-based retirement plan?


18 mil­li­on

Num­ber of employees that have invested in an employ­ment-based reti­re­ment plan [3]

To be make a long sto­ry short: anyo­ne who thinks that the public reti­re­ment plan will not be enough for him / her.

If the employ­er pays the ent­i­re pre­mi­um, the advan­ta­ge is imme­dia­te­ly obvious: you recei­ve an addi­tio­nal pen­si­on and “your boss pays”.

But the other vari­ants are also worthwhile, espe­ci­al­ly as the­re are exten­si­ve tax reduc­tion bene­fits.

The pre­mi­ums paid by the employee is direc­t­ly redu­ced from your gross inco­me. That means, that you do not pay taxes on this inco­me, up to a cer­tain limit of cour­se. The­re­fo­re, your inco­me after taxes is usual­ly only mini­mal­ly redu­ced while your pay­ment into your reti­re­ment plan is sub­stan­ti­al.

As employ­ers also bene­fit from the­se kinds of plans, they are often wil­ling to pro­vi­de a sub­s­idy. This is the opti­mal case, the employee gets the full tax-free opti­ons and the employ­er pro­vi­des a litt­le bonus.

The­re are of cour­se several con­di­ti­ons that must be met in order to recei­ve full government sub­si­dies. Fur­ther­mo­re, not every form of pen­si­on plan makes sen­se for every employee.

At this point a good con­sul­ta­ti­on and a care­ful con­si­de­ra­ti­on of all pos­si­bi­li­ties are of abso­lu­te impor­t­an­ce. The­re are many fac­tors that need to be con­si­de­red so that you can safe the maxi­mum amount for your reti­re­ment with mini­mum costs.

Questions? We have answers.

Employ­ment-based reti­re­ment plans are an essen­ti­al part your reti­re­ment pre­pa­ra­ti­ons.

We will get back to you wit­hin 24 hours — wit­hout any com­mit­ment from you and in your pre­fer­red way.