Is salary conversion worth it for me?
The answer depends on three things: what your employer contributes, how long you will keep paying in, and what your situation in retirement will look like. A blanket “yes” or “no” is wrong either way.
How it works
With salary conversion (Entgeltumwandlung) part of your gross pay goes straight into a pension contract. Because the money never leaves the gross figure, you initially pay neither income tax nor social contributions on it. A €100 contribution therefore costs you noticeably less than €100 net — often around half, depending on your tax rate.
On top comes your employer's subsidy: at least 15 % of the converted amount, where the employer saves social contributions. Some companies voluntarily pay considerably more.
When it clearly adds up
- Your employer is generous. From roughly 20–30 % subsidy the scheme becomes hard to beat — that is free money.
- You have many years to retirement. The tax and contribution advantage works across the whole term.
- Your tax rate is high today. The higher it is now, the larger the saving while paying in.
- You expect to stay with the company. Frequent moves fragment your provision into small contracts.
What you are rarely told
The scheme has real drawbacks. Knowing them leads to a better decision and no unpleasant surprises later.
- Your statutory pension falls. No pension contributions are paid on the converted portion, so it earns no pension points.
- The payout is fully taxable. The advantage while paying in is a deferral, not a gift.
- Health and care contributions apply. In retirement, people in the statutory health system pay the full rate on company pensions above an allowance — this catches many unprepared.
- No access before retirement. The capital is locked; early withdrawal is not envisaged.
- With a low subsidy it often does not pay. If your employer contributes only the statutory 15 %, a private solution can come out ahead.
The honest comparison
The decisive calculation is not “company pension yes or no”, but: what reaches you net in retirement — with the scheme, versus investing the same amount privately? That calculation must include the employer subsidy, your current tax rate, later taxation and health and care contributions.
The guide article includes an interactive calculator for the paying-in phase — your entries never leave your browser.
From the employee's perspective
How much may I convert?
Contributions are free of income tax up to 8 % of the pension insurance contribution ceiling, and free of social contributions up to 4 %. The euro amounts change annually.
What happens if I change jobs?
Your entitlement from salary conversion is yours immediately. You can continue the contract privately, freeze it, or — where both employers use the same route — transfer the capital. Freezing is the most common outcome.
What about parental leave or long-term sickness?
With no pay there is nothing to convert. You can pause the contract or continue privately. Arrange this in advance — otherwise gaps appear, particularly in any included survivor or disability cover.
Can my employer refuse?
No. The right to salary conversion is statutory. Your employer may, however, determine the implementation route and the provider.
I may leave Germany before retiring. Does it still make sense?
It requires care. Company pensions are paid out from Germany and taxed under the rules and treaties applying at the time. If a move abroad is likely, we look at portability and taxation before you commit rather than afterwards.
Clarity in 30 minutes
Bring your payslip and, if you have them, your existing contracts. Afterwards you will know where you stand.