Pensions 2026 Comparisons

Germany has a three-pillar system:

• the pay-as-you-go statutory pension insurance governed by Book VI of the German Social Code (“SGB VI”) which is compulsory for employees;
• occupational pensions, which are employer-financed or employer-organised; and
• privately funded pensions (eg, Riester pension, Basis-/Rürup pension).

Occupational pensions are in principle voluntary (save for a statutory right to salary conversion) but structurally supplement the state pension, since the first-pillar benefit level is generally not regarded as sufficient on its own.

The core statute for all occupational pension schemes is the Company Pensions Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung, “BetrAVG”). It deals with scheme types, vesting, indexation, insolvency protection, portability and settlement, etc.

Supplementary sources are:

• the Income Tax Act (Einkommensteuergesetz, “EStG”);
• the Social Security Act IV (“SGB IV”);
• the Insurance Supervision Act (“VAG”) for the supervision of pension funds (Pensionskassen or Pensionsfonds) and life insurers;
• the Insurance Contract Act (“VVG”);
• the Works Constitution Act (“BetrVG”) which deals with the co-determination of works councils in scheme design; and
• the Collective Agreements Act (“TVG”) which comes into play for schemes established by unions in tariff agreements, eg, the new social partner model.

Secondary law includes Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) circulars (eg, on risk assessment); Investment and VAG Regulation; and Pension Guarantee Fund (Pensions-Sicherungs-Verein aG, “PSVaG”) circulars dealing with insolvency issues. 

The interplay between the regulations is multi-layered: the pension promise is rooted in employment law, its implementation may however be structured as an insurance contract, and taxation depends on the type of scheme.

At EU level, the Portability Directive 2014/50/EU; the IORP II Directive 2016/2341 (implemented in the VAG); the equal-treatment directives 2000/78/EC and 2006/54/EC (implemented in the General Equal Treatment Act, “AGG”); and the DSGVO 2016/679 are the most relevant frameworks.

Participation in the Pillar 1 pay-as-you-go statutory pension insurance (SGB VI) is in principle compulsory for employees. Self-employed persons are generally not subject to any occupational pension obligation. Certain professions are compulsorily covered by specific pension schemes for these professions (see 2.4 Professional and Self-Employed Pension Arrangements). These replace the statutory pension.

There is no statutory obligation on employers to establish a Pillar 2 occupational pension scheme, with the exception of employees having an individual statutory right to salary/deferred compensation (Entgeltumwandlung, Section 1a BetrAVG) of up to 4% of the contribution ceiling for the social security system.

Sector-wide obligations can arise from collective bargaining (tariff) agreements. These can be declared generally binding (eg, the construction industry’s supplementary pension fund, public sector schemes, etc).

There is no nationwide statutory auto-enrolment/opt-out model as yet. Section 20 BetrAVG, however, allows for the establishment of an automatic deferred-compensation system with an opt-out right, provided there is an underlying tariff agreement.

Pillar 3 private pensions are completely voluntary.

The German Federal Pension Insurance (Deutsche Rentenversicherung Bund) administers the state pension.

The BaFin supervises Pensionskassen, Pensionsfonds and life insurers (as direct insurers) under the VAG (authorisation, solvency and governance). In contrast, direct pension commitments (Direktzusagen) and support funds (Unterstützungskassen), including their funding, are not subject to supervision. This is also true for contractual trust agreements (CTAs) which are frequently used as funding vehicles for direct commitments.

The Pension Guarantee Fund (PSVaG) administers the statutory insolvency protection system.

A pension promise or scheme can be established in its most basic form by way of a contractual agreement between an employer and an individual or a larger number of employees. This approach is often adopted for board members or senior employees.

Collective schemes covering the workforce of an entire or designated part of an operation or company can be established by way of works agreements concluded between an employer and a works council. This is the most common approach for larger schemes.

Industry-wide schemes can be established between an employers’ association and a union. Such schemes will be directly applicable only to unionised employees and employers which are members of the association, unless they are declared universally applicable throughout the sector. Their applicability can also be – and commonly is – contractually agreed with non-unionised employees.

Regardless of the nature of the scheme, the employer bears a statutory guarantee obligation, Section 1 (1) sentence 3 BetrAVG, even where the pension is externally funded.

Works councils have a statutory co-determination right (Section 87 Nos 8 and 10 BetrAVG) as to the distribution principles if a collective scheme is being established or changed.

Detrimental changes to a collective pension scheme can be challenged by individual employees before the labour courts, claiming that the change is unfair and disproportionate.

The First Company Pensions Strengthening Act (BetriebsrentenstärkungsG, “BRSG I” (2018)) introduced, most notably, the social-partner model (a genuine defined contribution (DC) system which previously did not exist in Germany, even though some schemes are traditionally treated as DC schemes from an accounting perspective) and the mandatory employer top-up for salary conversion. The BRSG II (December 2025) opened the social-partner model to non-collectively-bound employers, facilitated opt-out systems from 1 July 2026, and raised the thresholds for the unilateral settlement of very small entitlements. In parallel, the Rentenpaket 2025 reformed the state pension (floor on the pension level of 48% until 2031, extended maternal pension credits, and an “active pension” tax allowance). There is an ongoing political debate about further reforms to (i) stabilise the state pension; and (ii) correct deficiencies of occupational pension schemes.

Insurance companies can provide occupational pension schemes as a direct insurance (Direktversicherung), Section 1b(2) BetrAVG. The contract is concluded between the employer and the insurance company and the employee is granted a direct claim against the insurance company as beneficiary. The employer retains residual liability under Section 1(1) sentence 3 BetrAVG.

Insurance companies are also used to funding direct commitments and support funds by way of reinsurance policies. In such cases, the employer/support fund has the claim to the benefits.

Life insurers are subject to supervision by the BaFin. Products offered include classic guaranteed-rate plus variable surplus policies, as well as unit-linked and hybrid annuity products.

Occupational pensions can also be provided by Pensionskassen (mostly mutuals, some stock corporations) and Pensionsfonds (introduced in 2002, with greater investment flexibility and lower guarantee requirements). Pensionskassen can be either regulated or deregulated resulting, among other things, in differences regarding their insolvency protection, their rights to reduce benefits, and the degree of supervision by the BaFin.

All these providers require BaFin authorisation and are, in principle, subject to insurance laws and BaFin supervision. The rules relate to management/supervisory board governance, fit-and-proper requirements, a mandatory responsible actuary, technical provisions, prudent-person investment principles (an adapted Investment Regulation), minimum surplus-allocation rules, and ongoing BaFin reporting, including an own risk assessment (ORA).

Support funds (Unterstützungskasse) are legally independent pension providers with no statutory capital requirements. They are not BaFin-supervised and are typically funded via reinsurance policies (kongruent rückgedeckt) or funding assets (pauschaldotiert). Funding is subject to tax-law funding caps (Section 4d EStG). Support funds do not formally grant a claim to the beneficiaries.

An employer may also provide a pension by way of a direct commitment (Direktzusage). In such a case there is no external provider, just an unfunded balance-sheet obligation on the part of the employer. Funding assets which qualify as plan assets can, however, be created by way of CTAs or pledged re-insurance contracts allowing for a balance sheet netting. Direct commitments are the predominant form of occupational pension schemes by volume.

Genuine occupational pension access in the strict sense (employer-linked) is generally unavailable for the self-employed in the absence of an employee status.

Members of so-called “free” professions (doctors, lawyers, tax advisers, architects, etc) are compulsorily members of pension schemes set up for the sector of their profession (Versorgungswerke), which functionally replace the Pillar 1 statutory pension.

Otherwise, self-employed persons have access to the tax-favourable Pillar 3 Basis-/Rürup pension.

The pension promise/scheme itself is an employment-law construct (either an individual commitment, a general commitment, a collective works agreement or collective tariff agreement). The mandatory minimum content is regulated in the BetrAVG (type of promise, vesting, adjustment review, insolvency protection, etc).

Where the pension is externally funded, an additional administrative contract exists between employer and provider (eg, group insurance contract, participation agreement), governed by general civil law. If the third party provider is a Pensionskasse, life insurer or Pensionsfonds, the relevant statutory insurance laws apply and the employee is granted their own direct claim against the provider.

Otherwise, there is substantial freedom of contract, although this is limited by the mandatory provisions for the protection of employees under the BetrAVG.

An individual pension agreement is subject to general civil and employment law principles (party intent, good faith, customary practice) under Sections 133, 157 and 242 of the German Civil Code (Bürgerliches Gesetzbuch, BGB).

Pre-formulated individual commitments are additionally subject to standard-terms control (Sections 305 et seq BGB), with ambiguities construed against the drafter. The federal labour court has developed extensive case law on this.

Collective pension arrangements (works agreements, tariff agreements) are interpreted objectively/normatively, as would be the case for statutory norms (wording, systematic context, purpose).

Individual commitments can generally only be amended by individual agreement or (rather theoretically) via a notice of termination combined with a modified offer. There are no further conditions or restrictions other than the mandatory regulations under the BetrAVG (which, for example, restrict the ability to settle or waive a pension entitlement in certain situations). Under recent case law, there may be circumstances where individual agreements may also be amended through collective agreements.

Collective arrangements may be amended through a new works agreement under the principle of supersession, but subject to the federal labour court’s three-tier proportionality test:

• tier 1 – interference with already accrued entitlements is only lawful for compelling reasons;
• tier 2 – interference with the accrued dynamic of variable factors is only lawful for cogent reasons; and
• tier 3 – interference with future, not-yet-accrued increments is only permissible for proportionate objective reasons.

There is substantial case law to be found on this subject matter which is not always fully consistent, especially for tier 3 changes. Great caution and diligence must thus be exercised when implementing scheme changes. It is also important to note that employees may bring individual claims challenging the effectiveness of a change even decades after it was made, which may present substantial long-term risk for the employer. This has led to significant discussions among legal scholars and the problem has been addressed in recent political reform discussions, although with uncertain outcome.

There is no need to seek consent or approval from any other third parties such as the PSVaG in order to implement a change to the pension scheme as such, and there is no “pension regulator” or “scheme trustee” who needs to be involved.

Where the scheme is run by a Pensionskasse, a life insurer or Pensionsfonds, the beneficiary has a direct claim against the provider. The same is factually true for a support fund, even though it does not formally grant such a claim.

In all of the above cases, the employer always bears subsidiary liability for the promised benefit, irrespective of the funding vehicle chosen (statutory guarantee obligation, Section 1(1) sentence 3 BetrAVG).

Disputes between an employee/pensioner and the employer fall to the labour courts; disputes arising from the insurance relationship with the provider fall to the civil courts.

The standard three-year limitation period applies (Section 195 BGB) to payment claims. This limitation does not, however, apply to the basic right to the pension (Rentenstammrecht), which is subject to a 30-year limitation period.

There are five funding methods by which occupational pension schemes can be set up (direct commitment, support fund, direct insurance, Pensionskasse or Pensionsfonds).

These can be combined with four promise types:

• defined benefit;
• contribution-oriented defined benefit (contribution defined but converted into a guaranteed benefit);
• defined contribution with a minimum-capital guarantee; and
• pure defined contribution (true DC without guarantees, only available under the collectively bargained social-partner model).

Direct commitments are in principle balance-sheet financed (book reserves). Funding assets which can be recognised as plan assets can be created by way of a CTA or pledged reinsurance contracts.

The other vehicles are externally funded. Due to tax restrictions on funding, support funds are usually substantially underfunded unless they are backed by reinsurance, or cover only pensions in payment. The employer has a right to choose whether or not to reflect underfunding in a support fund in its commercial balance sheet. Funding deficits may occur with other external providers due to insufficient investment return.

The statutory retirement age is being raised in stages from 65 to 67 (to reach 67 for those born in 1964 or later; for those born before that, the retirement age depends on birth cohort). Early drawing is currently still possible from the age of 63 with reductions (0.3% per month), or unreduced for particularly long-insured individuals (45 contribution years). These rules may change due to political debate about the sustainability of the state pension system.

Occupational schemes may set their own retirement age; the earliest tax-neutral drawdown age is 60 for contracts concluded up to 31 December 2011 and 62 for contracts concluded thereafter.

Deferral of the pension is also possible.

An entitlement to an old-age pension requires reaching the plan’s retirement event while holding a vested or active entitlement. 

The calculation of the benefit depends on the promise type (benefit formula, account balance, or a conversion factor for DC-oriented schemes).

The default form of benefit is a lifelong annuity but one-off capital payments are permissible, as well as instalments-based drawdown plans.

Lump-sum settlement payments are permitted for de minimis entitlements (commutation thresholds raised by the BRSG II) or where the plan offers a capital option.

Survivors’ and orphans’ benefits are not mandatory for occupational pension schemes but can be included in the scheme. They are often structured as a risk benefit (insured) but can also be capital based. Typical conditions include a subsisting marriage/registered partnership at the time of the insured event,  and sometimes minimum marriage-duration clauses (the validity of which the courts will scrutinise under the equal-treatment law). Orphans’ pensions are restricted by age limits.

Disability pensions are typically linked, as a supplementary benefit, to the statutory concepts of full/partial reduced earning capacity (SGB VI) or to a contractually defined occupational incapacity. The amount is plan-specific (a fraction of the old-age or target pension). Where implemented via insurance, the insurer determines eligibility under the policy conditions, but the employer’s guarantee obligation remains.

Supervision and scrutiny of funding applies mainly to Pensionskassen, Pensionsfonds and life insurance companies. If the technical provisions are insufficient, the BaFin can order remedial measures and, in extreme cases, approve a reduction of non-guaranteed benefits. In such a case, according to the federal labour court, the employer must make up the shortfall against the original promise (guarantee obligation) even if the pension promise dynamically refers to the benefits provided by the external funding vehicle. Surpluses are subject to minimum-allocation rules.

Direct commitments and support fund schemes are not subject to formal solvency oversight. The insolvency risk is mitigated through insolvency protection (PSVaG).

Section 16 BetrAVG requires the employer to review, every three years, whether current pensions need adjusting for purchasing-power loss (based on the CPI) and to decide accordingly, applying equitable discretion. Consumer price indexation can be fully or partly denied if the employer can demonstrate that it is unable to sustain the burden due to insufficient return on capital or capital erosion. Indexation can be capped to the increase in net salaries of active employees but the test is difficult to fulfil in practice. Under certain circumstances, an indexation backlog arising from denied indexation in previous review periods may have to be taken into account in the following review. Detailed regulations apply.

The triannual indexation test may be substituted by a guaranteed 1% per annum minimum adjustment or a surplus-linked adjustment for life insurance-based schemes and Pensionskassen (Section 16 (3) Nos 1 and 2 BetrAVG). The 1% escape option is available only for new promises made after 31 December 1998.

Accrued entitlements are forfeited upon leaving employment, unless vested. Vesting occurs after three years of scheme membership and having reached the age of 21 (Section 1b BetrAVG); transitional rules apply for legacy cases.

On leaving employment, a vested entitlement generally remains with the previous provider (as a deferred entitlement) unless it is transferred by mutual tri-party consent to a new employer (Section 4 BetrAVG). The transfer can either relate to the scheme as such, leaving all terms and conditions intact, or relate only to the accrued value, which is then injected into a scheme of the new employer.

A statutory portability right (Section 4 BetrAVG) exists within one year of leaving, for the accrued value under a direct life insurance or Pensionskasse or Pensionsfonds, up to a value cap to be injected into a corresponding scheme of the new employer.

Cash settlement upon leaving employment is generally excluded, except for de minimis entitlements or permanent relocation outside the EU/EEA (Section 3 BetrAVG).

Continued voluntary contributions after leaving are generally not available. Exceptions apply in certain cases to direct insurances and Pensionskassen but these voluntary contributions made by an employee after leaving employment no longer qualify as an occupational pension issued by the employer.

In the event of insolvency, the mandatory insolvency protection by the PSVaG is triggered. The PSVaG insures vested entitlements and current benefits from direct commitments, support funds and, in certain circumstances, Pensionsfonds and at-risk Pensionskasse commitments.

The insurance is capped at three times the monthly reference amount (reference value pursuant to Section 18 SGB IV), which is adjusted annually (2026: EUR11,865 per month).

The insurance is funded through an annual levy on all employers running insured schemes, basically distributing the damage incurred in the previous year in accordance with a mechanism reflecting the size and nature of the scheme run by the employer.

In an asset deal, under Section 613a BGB (the German equivalent of Transfer of Undertakings (Protection of Employment) or TUPE regulations), pension obligations, including past and future accrual in relation to the active transferred employees, transfer automatically to the acquirer to which the business transfers. There is no transfer of liabilities with regard to former employees and pensioners under Section 613a BGB. Funding assets do not transfer automatically and compensation thus needs to be negotiated. Relationships to external providers holding funding externally may have to be set up or transferred to the acquirer. Typical due-diligence issues include the size and valuation of pension provisions, the funding status and potential additional capital requirements of external providers, PSV contribution history and exposure, validity of historic scheme changes, harmonisation risks when combining different pension arrangements post merger (again subject to the federal labour court’s three-tier test), and works council co-determination requirements.

In a share deal, the pension schemes are generally unaffected and remain with the sold entity. Where group-linked external scheme providers exist, it may become necessary to negotiate a transfer to another provider for the future. Accrued entitlements can usually be left behind. Due diligence in the case of share deals needs to cover the indexation history for pensions in payment, in addition to the aspects described above.

Where a CTA exists, a transfer of funds to a new CTA may have to be arranged.

For seconded employees, EU Regulation 883/2004 and/or bilateral social security agreements co-ordinate continued social security coverage in the state systems.

For occupational pensions, the VAG enables cross-border activity by Pensionskassen and Pensionsfonds as institutions for occupational retirement provision (IORPs) under home/host-state co-ordination.

The Portability Directive secures preservation, not automatic cross-border transfer, of vested rights.

Tax relief under Section 3 No 63 EStG is tied to German unlimited tax liability; payments abroad are subject to double-tax treaties and potentially, German limited tax liability (Section 49 EStG).

For temporary expatriates, it is not uncommon to remain part of a German shadow scheme crediting the years abroad.

The AGG prohibits discrimination based on outlawed criteria. Section 4 of the Part-Time and Fixed-Term Employment Act (Gesetz über Teilzeitarbeit und befristete Arbeitsverträge, “TzBfG”) secures pro-rata equal treatment for part-time/fixed-term employees. Age-graded contribution/benefit scales are permissible under narrow conditions given the special justification for age discrimination (Section 10 AGG), for example, compensating for shorter accrual periods. There is substantial case law on this and breaches may trigger “levelling up” and compensation claims (Section 15 AGG).

Changes to individual pension promises require consent by the employee. Upon an employee leaving the company, settlement of schemes with vested entitlements is restricted by law and usually not possible (Section 3 BetrAVG).

Schemes based on works agreements can be closed to new entrants by way of a works agreement or unilateral notice of termination, without any further test as to legal validity. Freezing or reducing future accrual under such a scheme for employees already enrolled in the scheme is technically achievable via a works agreement, but is subject to the three-tier test by the labour courts as to adequacy and fairness. 

Full wind-up is often not possible due to the vested rights of former employees and pensioners. Such liabilities can, however, be spun off to a pension buyout provider without the need for consent on the part of the employees or works council. This solution has become increasingly common in Germany in recent years and can now be considered a tried-and-tested method. Specific funding requirements apply, as well as statutory regulations on liability.

There is no general statutory obligation on the employer to provide occupational pensions; the only quasi-mandatory element is the right of the employees to demand salary conversion into a deferred-compensation scheme (Section 1a BetrAVG), together with the 15% mandatory employer top-up.

Sector-wide quasi obligations can arise from collective tariff agreements, which can also be declared generally binding for employers and employees who are not members of the associations/unions concluding the tariff agreement (eg, the construction industry’s and public sector’s supplementary pension funds).

This is largely a non-issue in Germany as there are – with the above-mentioned exceptions – no genuinely mandatory schemes (see 5.1 General Legal Framework).

If an employer refuses to enrol an employee in a mandatory scheme or establish deferred compensation or contribute to top-up, the employee can enforce this before the labour courts (performance/damages). 

Pensionskassen and Pensionsfonds are subject to the prudent-person principle (security, quality, liquidity, profitability, diversification) under the VAG/IORP II implementation.

Pensionskassen are additionally subject to quota limits under the Investment Regulation. These regulations are more relaxed for Pensionsfonds.

Direct commitments/support funds are not subject to any investment restrictions. Support funds investments, however, factually consist of re-insurance contracts for tax reasons.

Where a direct commitment scheme is secured via a CTA, general fiduciary duties apply to the trustee but the investment is flexible and not governed by the rules for Pensionskassen and Pensionsfonds.

Outsourcing of asset management and administration (record-keeping, member communication, benefit calculation, payment) must be notified to the BaFin before the outsourcing agreement takes effect. Management retains ultimate responsibility, and there are duties of selection, ongoing monitoring and the conclusion of a legally enforceable written agreement, as expressly required by IORP II Article 31. Additional audit/access rights and exit/contingency arrangements are also imposed under the relevant VAG rules.

Occupational pension institutions must disclose how they deal with sustainability risks in their investment policy statement and must factor these into the mandatory own-risk assessment. There is no obligation to invest sustainably, but there is a disclosure obligation. The BaFin has issued a circular on ESG.

The IORP II Directive has been implemented in the VAG and covers Pensionskassen and Pensionsfonds as institutions for occupational retirement provision. Direct insurance falls under the Solvency II regime. Cross-border IORP activity and portfolio transfers are separately regulated under the VAG (home/host-state principle, BaFin/European Insurance and Occupational Pensions Authority (EIOPA) co-operation).

When an employee joins a pension scheme, the employer/provider must inform the employee about the type of promise, funding, contribution levels, and vesting and portability rules (insurance law information duties under the VAG Information Regulation apply where the pension is insurance-based).

On leaving, the employee has a right to information on the existence and amount of the vested entitlement, as well as on portability options and the one-year exercise period (Sections 4 and 4a BetrAVG).

Active members regularly (usually annually) receive benefit statements showing accrued entitlement and, where applicable, surplus participation; deferred members and pensioners can request information at any time (Section 4a BetrAVG). The VAG Information Regulation specifies content, clarity and presentation standards.

The 2021 Pension Overview Act created the “Digital Pension Overview” (Digitale Rentenübersicht) – a platform that lets individuals have a consolidated overview of their statutory, occupational and private pension entitlements. Access is via a digital identification procedure, with rights of access to and correction of the underlying data. Exceptions apply for smaller schemes and implementation is still not fully finalised.

Employer contributions to external funding vehicles are deductible business expenses (limits apply in certain cases, such as support funds).

Liabilities arising from direct pension grants are recognised as accruals on the tax balance (Section 6a EStG).

Employee deferred-compensation contributions to Pensionskassen, Pensionsfonds or direct insurance are subject to front-end taxation, but there is a tax-free allowance of up to 8% of the western contribution ceiling (Beitragsbemessungsgrenze, BBG) per annum. Contributions are free of social security contributions up to 4% of the BBG per annum. Amounts above these thresholds are taxed and subject to social security charges as ordinary salary.

Returns within the external funding vehicles are not taxed on an ongoing basis for the employee (deferred taxation).

Benefits are taxed in full as employment income (Section 19 EStG) or other income (Section 22 No 5 EStG), depending on the nature of the scheme. Lump sums may qualify for tax-smoothing under the “one-fifth rule” (Section 34 EStG).

Cross-border payments are subject to double-tax treaties and potentially, German limited tax liability (Section 49 EStG).

Disputes over the tax treatment of contributions/benefits follow the standard procedure under the Fiscal Code: tax assessment, objection to the tax office, action before the fiscal court, and appeal to the federal fiscal court. Questions about the deductibility of employer contributions typically arise in the context of tax audits.

Individual disputes between an employee/pensioner and the employer or a works council or union fall within the jurisdiction of the three levels of the labour courts – Arbeitsgericht (ArbG), Landesarbeitsgericht(LAG), Bundesarbeitsgericht (BAG) – even after termination of employment.

Claims directly against an insurer or Pensionskasse under the insurance relationship go to the civil courts.

Labour court proceedings are comparatively low cost (no cost-shifting in the first instance). Remedies include performance and declaratory actions and damages.

The BaFin supervisory measures against Pensionskassen and Pensionsfonds (eg, remediation orders, approval of benefit reductions, licensing decisions) can be challenged before the administrative courts (venue typically Frankfurt am Main), with further appeal to the higher administrative court and revision to the federal administrative court.

Disputes over the scope of PSV protection, by contrast, are heard by the labour courts, since they derive from the underlying employment-based pension relationship.