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How does salary conversion for a company pension work?

In short

How does salary conversion for a company pension work? You give up part of your gross pay and your employer pays it straight into a pension contract. In 2026 up to 338 euros a month are free of tax and social charges, up to 676 euros free of tax. Your employer must add 15 percent where he saves social charges. In retirement the pension is taxed and health insurance is due.

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What it costs

German limits for 2026 and typical monthly amounts for salary conversion.

Example	Typical range
Convert 100 euros, employer adds the mandatory 15 percent	115 euros into the contract, net cost about 50 to 60 euros
Convert 200 euros, 15 percent top up	230 euros into the contract, net cost about 100 to 105 euros
Convert 338 euros, fully free of charges, 15 percent top up	about 389 euros into the contract
Convert 500 euros	338 euros free of all charges, 162 euros free of tax only

Limits by law and the official figures for 2026.

The net costs are guide values from our quoting practice for tax class I and a middle income; yours depend on tax class, children and health insurer.

No tax advice.

Worked example

3,200 euros gross, tax class I, converting 150 euros

This is how salary conversion shows on a German payslip.

Gross pay before	3,200 euros
Converted	150 euros
Gross pay for tax and social charges	3,050 euros
Social charges saved, about 21 percent	about 32 euros
Income tax saved	about 35 to 40 euros
Less net pay in your account	about 78 to 83 euros
Into the contract with 15 percent top up	172.50 euros

For about 80 euros less net pay, 172.50 euros a month go into your pension, a little more than twice as much.

How it works on your payslip

In German this is called Entgeltumwandlung. You sign an agreement with your employer: a fixed part of your future gross salary is not paid out but goes into a pension contract. Within the limits, no income tax and no social security contributions are deducted from that part.

The Company Pensions Act, Betriebsrentengesetz, gives every employee this right, including foreign nationals working in Germany. Your employer may choose the provider and the vehicle, for example a group Direktversicherung. He does not have to accept a contract of your choosing.

Later the contract pays a monthly pension or, if agreed, a lump sum. It is fully taxable, and members of statutory health insurance pay health and long term care contributions on it.

Limit 2026	Amount
Contribution ceiling of the statutory pension insurance	101,400 euros a year
4 percent: free of tax and social charges	4,056 euros a year, 338 euros a month
8 percent: free of tax only	8,112 euros a year, 676 euros a month
Minimum under the legal right	about 297 euros a year
Mandatory top up on 338 euros converted	up to 50.70 euros a month

The five vehicles

German company pensions run through one of five vehicles. Small and medium firms mostly use the Direktversicherung, a group life or pension policy in your name, because it is easy to administer.

The 15 percent top up applies to Direktversicherung, Pensionskasse and Pensionsfonds only. A collective agreement can set different rules.

Vehicle	What to know
Direktversicherung	policy in your name, easy to take to a new employer
Pensionskasse	similar, often tied to an industry or a company group
Pensionsfonds	more investment freedom, usually without a full guarantee
Unterstützungskasse	no 8 percent limit, but hard to take with you
Direktzusage	employer pays the pension himself, not transferable

What your employer adds

Since 2022 every employer must add 15 percent of the converted amount, as far as he saves social security contributions himself. If you earn more than the health insurance ceiling of 69,750 euros a year, he saves less and may pay less.

Many employers add more voluntarily, 20 to 50 percent are not unusual. Ask about it before signing, it is the strongest lever for your return.

Since 2026 companies without a collective agreement may enrol all staff automatically through a works agreement, with the right to opt out. In that case the top up must be at least 20 percent.

The downsides, honestly

Because less goes into the statutory pension insurance, your state pension will be slightly lower. Converting 200 euros a month for one year costs roughly 2 euros of monthly state pension.

Sick pay, unemployment benefit and parental allowance can also be a little lower, as they are based on the reduced gross pay.

In retirement members of statutory health insurance pay the full health and care contribution on the company pension, about 21 to 22 percent on the part above 197.75 euros a month. That claws back part of today's saving.

If you plan to leave Germany for good, check before signing what happens to the contract abroad. It usually stays in Germany and pays out later.

Step by step

Ask HR which vehicle the company offers and how much it adds.
Choose a monthly amount, at most 338 euros for the full advantage.
Check the offer for costs in euros, guaranteed pension and cover for your family.
Sign the salary conversion agreement, your employer registers the contract.
Check the next payslip for the right amount and top up.
Keep the yearly statement from the provider.

Checklist

Top up in writing in the agreement
Amount within 338 euros a month
Contract costs known in euros
Rules for parental leave and long illness clear
Transfer to a new employer possible
Payslip checked after the first month

Common mistakes

Not asking for the top up although it is mandatory
Converting more than 338 euros and overlooking social charges on the rest
Choosing an Unterstützungskasse without thinking of a later job change
Ignoring tax and health insurance in retirement

Questions and answers

Frequently asked

Can my employer refuse salary conversion?

No. You have a legal right up to 4 percent of the contribution ceiling. He may, however, decide on the provider and vehicle.

Can I stop the salary conversion again?

Yes, usually at the end of a month or with the notice set in the agreement. The contract is then made paid up, your money stays in it.

Does it work for mini jobs?

Yes, mini jobbers have the right too. With small amounts, costs quickly eat the advantage, so do the maths.

What happens during parental leave?

Without pay the conversion pauses. Since July 2026 you can restart a Direktversicherung within three months on the old terms.

Can I convert my Christmas bonus?

Yes, one off payments can be converted as long as the yearly limits of 4,056 and 8,112 euros are not exceeded.

I may leave Germany later. Is it still worth it?

Your claim stays yours and is paid out later, also abroad. Moving it into a foreign pension system is not provided for, so the contract usually rests in Germany.

Sources

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