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Workplace pensions in Germany: what you need to know

14 August 2019

  • In addition many companies, in particular large and international enterprises, choose to offer employer-financed (second tier) workplace pension schemes to help attract and retain staff. 
  • Workplace pension arrangements may be set up using one of five different pension vehicles. Details of each type of vehicle are set out in this note. 
  • Since 2002, employers must enable their staff to make employee contributions to a workplace pension scheme through salary sacrifice (Entgeltumwandlung), at the employee's request. Salary sacrifice to a workplace pension arrangement has tax advantages for the employee. 
  • Under all types of workplace pension arrangement (except for new "pure DC" arrangements – please see below), the employer remains ultimately liable for any shortfall in the funding of the benefits, even where the arrangement is nominally "contribution based". 
  • New legislation, the Occupational Pensions Strengthening Act (Betriebsrentenstärkungsgesetz)(BRSG) came into force on 1 January 2018. The BRSG is focussed on the following areas: 
    • enabling the establishment of "pure" defined contribution (DC) arrangements, subject to certain conditions; 
    • a new requirement for employers to contribute to a pension arrangement for their employees, where the employee converts (sacrifices) salary to make pension contributions 
    • allowing "auto-enrolment" into an employer's salary sacrifice arrangement, with the employee having a right to opt out; and 
    • increasing participation in workplace pension schemes, especially among lower paid workers. 

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